Average demand for a particular item is 1,200 units per year. It costs $100 to place an order for this item, and it costs $24 to hold one unit of this item in inventory for one year. If the fixed-order-interval model is chosen in this instance, how often (on average)will this item be ordered?
A)once a month
B)once every other month
C)twice a month
D)twice every three months
E)three times every two months

Question

Quizplus · Accepted Answer

The fixed-order-interval model is not directly related to the economic order quantity (EOQ) formula, which calculates the optimal order quantity to minimize total inventory costs. The question does not provide enough information (like the desired reorder interval or the total inventory policy) to calculate order frequency using the fixed-order-interval model. However, given the options and the context, the question seems to be mistakenly framed as if it's asking for an EOQ-based calculation. The EOQ formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand, $S$ is the ordering cost, and $H$ is the holding cost. Plugging in the given values: $\sqrt{\frac{2*1200*100}{24}} = 100$, which suggests an order size, not frequency. Without the correct context or formula application for a fixed-order-interval model, the answer cannot be accurately determined from the provided information. Therefore, my initial response was based on a misunderstanding of the question's intent.

Average Demand for a Particular Item Is 1,200 Units Per