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Ques - Plot Co sells Product P with sales occurring evenly throughout the year.
Product P
The annual demand for Product P is 300,000 units and an order for new inventory is placed each month. Each order
costs $267 to place. The cost of holding Product P in inventory is 10 cents per unit per year. Buffer inventory equal
to 40% of one month's sales is maintained.
- What is the total annual cost of a policy based on using the economic order quantity (EOQ)
My question - While calculating the avg inventory why is the buffer inventory still 10k shouldnt it change with the change in EOQ ?
PS : This a question from BPP exam kit
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EQO
4y ago#1No - the buffer (or safety) inventory does not change. They will hold 10k more than in theory they actually need, throughout the year.
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