Lisa Surowsky was asked to help in determining the best ordering policy for a new product. Currently, the demand for the new product has been projected to be about 1,000 units annually. To get a handle on the carrying and ordering costs, Lisa prepared a series of average inventory costs. Lisa thought that these costs would be appropriate for the new product. The results are summarized in the following table. These data were compiled for 10,000 inventory items that were carried or held during the year and were ordered 100 times during the past year.
Help Lisa determine the EOQ.
COST FACTOR COST ($)
Taxes ................ 2,000
Processing and inspection ........ 1,500
New product development ....... 2,500
Bill paying ............. 500
Ordering supplies ........... 50
Inventory insurance ......... 600
Product advertising ......... 800
Spoilage .............. 750
Sending purchasing orders ....... 800
Inventory inquiries .......... 450
Warehouse supplies ......... 280
Research and development...... 2,750
Purchasing salaries ......... 3,000
Warehouse salaries ......... 2,800
Inventory theft ............ 800
Purchase order supplies ........ 500
Inventory obsolescence ........ 300