0

# The annual cost of placing the orders is given by the formula Qcx^(-1). Substitute numbers for Q and c and write the resulting expression for the annual orderin

The simplest type of inventory situation involves products that are fairly low cost and have steady demand (no seasonality) throughout the year. You might think of something like drinking straws at a fast food restaurant, latex gloves in a hospital, or boxes of printer paper in an office. Orders are placed and supplies are delivered regularly throughout the year, and there is no uncertainty in the situation.

For this problem you will go through steps to determine the most cost effective way to supply large bottles of water (the kind that fit upside down into dispensers) to an office building.
Usage records show that annual demand is 1200 bottles.
There is a cost of \$25 to place each order.
Because space is at a premium in this building, it costs \$6 to store a bottle for a year.

Your task in this problem is to determine how many bottles to order each time an order is placed.

Inventory theory says that the annual cost of managing this inventory (ignoring the cost of the water itself) is composed of two costs: the cost of doing the ordering and the cost of storing the inventory. Let
Q = the annual demand
c = the cost to place an order
s = the cost to store a bottle in inventory for a year.
x = the number of bottles to order each time an order is placed.

a. The annual cost of placing the orders is given by the formula Qcx^(-1). Substitute numbers for Q and c and write the resulting expression for the annual ordering cost.