The inventory management costs for a certain product are S = $8 to order, and H = $1 to hold for a year. Annual demand is 2400 units. Consider the following ordering plans:
(a) order all 2400 at one time, (b) order 600 once each quarter, and (c) order 200 once each month. Calculate the annual holding and setup costs associated with each plan. (d) Is there another plan, cheaper than any of these? Calculate this order quantity along with its total annual holding and setup costs.
(a) TC2400 = 1($8 ) + ($1 ) = $1208.00
(b) TC600 = 4($8 ) + ($1 ) = $332.00
(c) TC200 = 12($8 ) + ($1 ) = $196.00
(d) Q* = = 196 is the cheapest solution.
TC196 = (2400/196 )($8 ) + ($1 ) = $97.96 + $98.00 = $195.96
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