Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas's fastest-moving inventory item has a demand of 6 comma 000 units per year. The cost of each unit is $98, and the inventory carrying cost is $8 per unit per year. The average ordering cost is $29 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 120 units. (This is a corporate operation, and there are 250 working days per year). a) What is the EOQ? 208.57 units (round your response to two decimal places). b) What is the average inventory if the EOQ is used? 104.29 units (round your response to two decimal places).

a. 208.57 units

b. 104.29 units

Explanation:

a. The computation of the economic order quantity is shown below:

= 208.57 units

b. And, the average inventory is

= Economic order quantity ÷ 2

= 208.57 units ÷ 2

= 104.29 units

We simply applied the above formulas for calculation of the economic order quantity and the average inventory and the same is shown above

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