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?

Explanation:

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, D123000

Setup cost, S45

Holding cost, H22.00%

Unit Price, P1

Results  

Optimal Order Quantity, Q*7093.530984

Maximum Inventory7093.530984

Average Inventory3546.765492

Number of Setups17.3397424

Holding cost$780.29  

Setup cost$780.29  

Unit costs$123,000.00