A liquor warehouse expects to sell 10,000 bottles of....

Question

A liquor warehouse expects to sell 10,000 bottles of scotch whiskey in a year. Each bottle costs $14, plus a fixed charge of $80 per order. If it costs $10 to store a bottle for a year, how many bottles should be ordered at a time and how many orders should the warehouse place in a year to minimize inventory costs?

Answer 1

EOQ (Economic Order Quantity) = √2DK/h where D is annual demand, k is cost per order, and h is yearly carrying cost

 

EOQ = √2*10,000*$80/$10 = 400 bottles

 

Since the demand is for 10,000 bottles, you need to order 10,000 divided by 400 bottles per order or 25 times per year