Consider a firm with a daily demand of 100 units, a production rate per day of 500 units, a setup cost of $200, and an annual holding cost per unit of $10. Suppose that the firm operates 300 days per year. How many units of inventory must their storage area be able to hold? A. 1095 B. 9798 C. 980 D. 1081 E. 1225 F. 876

980

Explanation:

The number of units of inventory that the storage area must be able to hold will be calculated as:

Demand = 100 × 300 = 30000

Production rate per day = 500

Setup cost = $200

Annual holding cost = $10

We then use the economic order quantity formula to solve and the answer will be gotten as 1225

The maximum inventory will now be:

= EQQ × (1-d/p)

= 1225 × (1-100/500)

= 1225 × ( 1 - 0.2)

= 1225 × 0.8

= 980

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