An outdoor sports company sells 250 kayaks per year. It costs $8 to store one kayaks for a year. Each reorder cost $10, plus an additional $8 for each kayak ordered. How many times per year should the store order kayak in order to minimize inventory costs
We can start by finding the optimal order quantity using the Economic Order Quantity (EOQ) formula:
EOQ = √((2DS) / H)
where:
D = annual demand (250 kayaks)
S = cost per order ($10)
H = holding cost per unit per year ($8)
Plugging in the values, we get:
EOQ = √((2 * 250 * 10) / 8)
= √(5000 / 8)
≈ 35.36
Since you can't order a fraction of a kayak, the optimal order quantity would be rounded up to 36 kayaks.
Next, we need to find the number of times per year the store should order the kayaks. This can be calculated using the following formula:
Order frequency (F) = (D / EOQ)
Plugging in the values, we get:
F = (250 / 36)
≈ 6.9444
Since you can't order a fraction of a time, the store should order kayaks approximately 7 times per year to minimize inventory costs.