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PQR co has a deman of 7500 units per month . Each unto cost $5, ordering cost are $100 per order and inventory holding cost is 10% of purchase price per year.
There’s a lead time of 30days between placing an order and receiving delivery.
If they order the EOQ each time , at what level of inventory should a new order be placed ?They need to place an order when they have 7,500 units left in inventory.
(Because this will last them the one month (30 days) that it will take to receive the new order.)
(The EOQ is of no relevant here – it is there to trick you.)
OK – I suppose that strictly it is 7397 because not all months have 30 days!
The demand per year is 12 x 7500 = 90,000
So the demand per day is 90,000/365.
So the demand over the lead time of 30 days is 30 x 90,000/365, which is 7397
However, I don’t know where you found that question. If it was in the ACCA exam then I will complain to them because it is a little bit childish to worry about a day 🙂
(And not all years have 365 days anyway 🙂 )
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