Average demand for a particular item is 1,200 units per year. it costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. if the fixed-order-interval model is chosen in this instance, how often (on average) will this item be ordered?

Question

Lennon

Business

14 February, 09:29

Average demand for a particular item is 1,200 units per year. it costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. if the fixed-order-interval model is chosen in this instance, how often (on average) will this item be ordered?

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Peppermint · Answer 1

On average this item will be ordered "once a month".

We can find the order interval by dividing the EOQ (economic order quantity), in above situation that is equal to 100 and annual demand is equal to 1200.

So, the time interval in which this item will be ordered;

100/1200 = 1/12

it means 1/12th of a year that is equal to once a month.