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?
First, calculate the EOQ from the data provided. In this problem, the "units" are dollars, and the "price" of each is 1.
Q* = = 7093.53
One month's usage is 123000/12 = $10,250. EOQ = 7094. Month's usage = 7094/10250 = 0.69, or about three week's usage. (This is supported by the order frequency of 17 per year).
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