Question

8(b) A trading company buys and sells 10,000 bottles of pain-balm every year. The

company’s cost of placing an order of pain-balm is Rs. 100. The holding cost per

bottle on inventory is Rs. 0.3. (5)

(i) Determine the optimum order quantity and inventory cycle time for the pain-balm,

bottles.

(ii) How many orders should be placed each year?

Answer 1

i) The optimum order quantity kk is the ratio between the cost of placing an order mm and the holding cost $p$

$k=\frac mp=\frac{100}{0.3}=333 bottles$

inventory cycle time tt is the ratio between the optimum order quantity kk and the quantity of the bottles $n$

$t=\frac kn=\frac{333}{10000}=\frac{1}{30}$ year (or 1212 days).

ii) Number of orders ss is the inverse of the inventory cycle time t,t,

$s=\frac 1t=30$ orders per year.