Atherton Foods is seeking to better manage its inventories. The first item they want to examine has the following characteristics sells for $1.28/unit. It costs them 25 percent of the average value of the inventory of this item to hold it; they use 72,000 of them during a typical year. Cost studies have shown them that it costs $20.00 to place an order for more it, and once that order is placed it takes 5 days to receive the item. Assume a year has 360 days.
If they wish to minimize the total cost of their inventory for this item, how many should they order each time they place an order?
How many units should be left when they place their next order?
Assuming they buy the number of items you determined in question 1 above, how many orders will they place each year?