a local office supply store has an annual demand for 50,000 cases of photocopier paper per year. it costs $2 per year to store a case of photocopier paper, and it costs $50 to place an order. Find the optimum number of cases of photocopier paper per order
To find the optimum number of cases of photocopier paper per order, we need to use the Economic Order Quantity (EOQ) formula. The EOQ formula is a widely used inventory management model that helps determine the optimal order quantity that minimizes total inventory costs.
The EOQ formula is as follows:
EOQ = √((2 * D * S) / H)
Where:
- EOQ is the Economic Order Quantity (the optimum number of cases per order)
- D is the annual demand for photocopier paper (50,000 cases)
- S is the cost to place a single order ($50)
- H is the holding cost per case per year ($2)
Now, let's compute the EOQ for the given values:
EOQ = √((2 * 50,000 * 50) / 2)
EOQ = √((5,000,000) / 2)
EOQ ≈ √2,500,000 ≈ 158
The optimum number of cases of photocopier paper per order, rounded to the nearest whole number, is approximately 158 cases.
Therefore, in order to minimize inventory costs, it is recommended to place an order for around 158 cases of photocopier paper.