Answer to Question #122291 in Financial Math for Cynthia

Question

Tele-Reco is a new specialty store that sells mobile phones, laptops and other computer accessories. A new Japanese-manufactured mobile phone reorder costs Tele-Reco $600 per unit. Tele-Reco’s annual holding cost rate is 22%. Ordering costs are estimated to be $70 per order.

Answer 1

If the daily demand is expected to be 20 units monthly, the recommended order quantity will be:

$\text{Q}=\sqrt{\dfrac{2DO}{H}}$

The annual demand will be: $20×12=240$

Ordering cost is $70.

The holding cost is: $\dfrac{22}{100}\times600=132$

$\text{Q}=\sqrt{\dfrac{2\times 240 \times 70}{132}}$

$\text{Q}=15.95=16 \text{Units}$