Central University uses $123,000 of a particular toner cartridge for laser printers in the student computer labs each year. The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22% of the purchase price. How many months' supply should the purchasing director order at one time to minimize the total annual cost of purchasing and carrying?

Question

Business

Leila Goodman

30 January, 18:13

Central University uses $123,000 of a particular toner cartridge for laser printers in the student computer labs each year. The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22% of the purchase price. How many months' supply should the purchasing director order at one time to minimize the total annual cost of purchasing and carrying?

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Taniyah · Answer 1

We have to calculate the Economic Order Quantity (EOQ). In this case, the "units" are dollars, and the "price" of each is 1.

One month's usage is 123000/12 = $10,250.

EOQ = 7094.

Month's usage = 7094/10250 = 0.69

Data

Demand rate, D 123000

Setup cost, S 45

Holding cost, H 22.00%

Unit Price, P 1

Results

Optimal Order Quantity, Q * 7093.530984

Maximum Inventory 7093.530984

Average Inventory 3546.765492

Number of Setups 17.3397424

Holding cost $780.29

Setup cost $780.29

Unit costs $123,000.00