Manfred Manufacturing is involved in the production of machine parts.

Manfred Manufacturing is involved in the production of machine parts. The company uses 600,000 pounds of
steel annually. The current purchasing cost for steel is $3.20 per pound. The carrying cost for inventory is 10
percent of the purchase price.

The cost of ordering steel is $800 per order. The company has decided to maintain
a safety stock of 15,000 pounds. The delivery time per order is 6 days. The company works 365 days a year.
a. Determine the optimal EOQ.
b. How many orders will be placed annually?
c. What is the average inventory?
d. What is the inventory order point? (That is, at what level of inventory should a new order be placed?)
e. What is the company’s total inventory cost for the year?

ANSWER

a. Q* = 2(600,000)($800)
(.10)($3.