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Question

Item X is a standard item stocked in a company's inventory of component parts. Each year, the firm, on a random basis, uses about $2,000$ of item X, which costs $\$ 25$ each. Storage costs, which include insurance and cost of capital, amount to $\$ 5$ per unit of average inventory. Every time an order is placed for more of item $X$, it costs $\$ 10$.

a. Whenever item X is ordered, what should the order size be?

b. What is the annual cost for ordering item X?

c. What is the annual cost for storing item X ?

Solution

VerifiedAnswered 1 year ago

Answered 1 year ago

Step 1

1 of 7In this task, we will calculate the order size for item X and what are the associated annual costs of ordering and storing it.

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