BUSN – A firm is faced with the attractive situation in which it can obtain

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A firm is faced with the attractive situation in which it can obtain immediate delivery of
an item it stocks for retail sale. The firm has therefore not bothered to order the item in
any systematic way. However, recently profits have been squeezed due to increasing
competitive pressures, and the firm has retained a management consultant to study its
inventory management. The consultant has determined that the various costs
associated with making an order for the item stocked are approximately $70 per order.
She has also determined that the costs of carrying the item in inventory amount to
approximately $27 per unit per year (primarily direct storage costs and forgone profit on
investment in inventory). Demand for the item is reasonably constant over time, and the
forecast is for 16,500 units per year. When an order is placed for the item, the entire
order is immediately delivered to the firm by the supplier. The firm operates 6 days a
week plus a few Sundays, or approximately 320 days per year. Determine the following:
a. Optimal order quantity per order
b. Total annual inventory costs
c. Optimal number of orders to place per year
d. Number of operating days between orders, based on the optimal ordering.

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