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An important component of many businesses expenses are inventory costs. For example, suppose a retail business sells 2,000 computers each year. The business could order
An important component of many businesses expenses are inventory costs. For example, suppose a retail business sells 2,000 computers each year. The business could order all 2,000 computers all at once, but then they would be facing significant carrying costs of storing them (insurance, storage space, interest, etc.). A different option would be to place several smaller orders throughout the year. For example, maybe the business will make 4 orders throughout the year, each order consisting of 500 computers. This would definitely reduce carrying costs. However, there are reordering costs that occur with each order (accounting cost, shipping charges, communication cost, etc.). The goal of this worksheet is find the optimal strategy to minimize the total inventory cost, which is the sum of the storage costs and reordering costs. That is
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