A retail outlet for calculators sells 900 calculators per year. It costs $2 to store one calculator for a year. To reorder, there is a fixed cost of $4, plus $1.25 for each calculator. How many times per year should the store order calculators, and in what lot size, in order to minimize inventory costs?

In order to minimize cost the outlet must order 60 units 15 times a year.

Explanation:

Theoretically, the EOQ is the optimal order quantity that a firm should purchase in order to minimize its inventory costs (holding costs are included here), and costs of placing an order.

Mathematically:

EOQ=

Where:

D= demand

S= cost of placing an order.

H= holding cost (per unit and per year).

In the statement, we identify each of these values:

D= 900

S= 4

H= $2

EOQ= =√2*4*900/2= 60

Times per year= 900/60= 15