Karloff Medical Supply maintains an average inventory of 2,000 human skulls for sale to medical schools and filmmakers. The carrying cost per skull per year is estimated to be $5. Boris places an order for 10,000 skulls on the first of each month and the order cost is $75. What are the total restocking costs using the EOQ?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is used to minimize the total inventory costs, which include ordering and carrying costs. The EOQ is calculated as the square root of (2DS/H), where D is the demand (120,000 skulls per year), S is the order cost ($75), and H is the carrying cost per unit per year ($5). The EOQ calculation gives the optimal order quantity, and the total restocking cost is calculated using this EOQ value.

Karloff Medical Supply Maintains an Average Inventory of 2,000 Human