Hammonds Corporation is trying to decide between two alternate order plans for its inventory of a certain item. Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually. Under Plan A: order costs would be $ 40 per order and inventory holding costs (carrying cost) would be $100 per unit per annum. Under Plan B order costs would be $30 per order, while holding costs would be 20% of unit cost which is $480. Determine: i. the economic order quantity for EACH plan  ii. total inventory cost for EACH plan  iii. hence, indicate which plan would be better for the company

Practical Management Science
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Hammonds Corporation is trying to decide between two alternate order plans for its
inventory of a certain item. Irrespective of the plan to be followed, demand for the item is
expected to be 1,000 units annually. Under Plan A: order costs would be $ 40 per order
and inventory holding costs (carrying cost) would be $100 per unit per annum. Under Plan
B order costs would be $30 per order, while holding costs would be 20% of unit cost which
is $480.
Determine:
i. the economic order quantity for EACH plan 
ii. total inventory cost for EACH plan 
iii. hence, indicate which plan would be better for the company 

 

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