Question: Formulas: Total Inventory Cost = TIC Total Order Cost = TOC Total Carry Cost = TCC Fixed Order Cost = FOC Annual Demand (Units) =

Formulas:
Total Inventory Cost = TIC
Total Order Cost = TOC
Total Carry Cost = TCC
Fixed Order Cost = FOC
Annual Demand (Units) = U
Whole Sale Purchase Price
(or Unit Cost) = PP
Annual Carry Cost (% of PP) = CC
TOC = FOC * U/Q
TCC =(Q/2) * CC * PP
Order Quantity = Q
TIC = TOC + TCC = (FOC * (U/Q) + ((U/2) * CC * PP)
Cost Minimizing Q = SQRT((FOC * U * 2) / (CC * PP)) = Q*
note: this is derived by setting the first derivitive
of TIC to 0.
Reorder Point = (U/365) * lt = ROP
Input Data
Annual Unit = U
Purchase Price = PP
Fixed Order Cost = FOC
Carry Cost = CC
Order Lead Time (in days) = LT
Objective:
Find the order quantity that minimizes the total cost of managing inventory.

Solution:
Q* =
TCC =
TOC =
TIC =
ROP = units

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