Ray wishes to determine the optimal order quantity for its best-selling bike in his bike store. Ray pays the supplier a wholesale price of $80 each for this bike. Ray has estimated the average daily demand for this bike is 14 units. The store opens 259 days a year. The cost to carry one bike in the store for a whole year is 5% of the unit bike cost. Ray has estimated that, on average, the order processing cost, i.e., ordering cost, with the bike supplier each time is $118, and it roughly takes 20 working days to receive the order from the supplier. Ray wishes to avoid the stock-out situation with a probability of 95%, and this requires Ray to carry a safety stock of 30 bikes in the store.

What is the optimal order quantity (EOQ value) that Ray should order each time from the bike supplier to minimize his long-run inventory cost?

Answer rating: 100% (QA)

To calculate the optimal order quantity EOQ we need to consider the average daily demand number of o... View the full answer