A Printing Company Estimates That It Will Require 10,000 Reams

Essay

A printing company estimates that it will require 10,000 reams of a certain type of paper in a given period. The cost of carrying one unit in inventory for that period is $1.50. The company buys the paper from a wholesaler in the same town, sending its own truck to pick up the orders at a fixed cost of $50.00 per trip. Treating this cost as the order cost, (a) what is the optimum number of reams to buy at one time? (b) How many times should lots of this size be bought during this period? (c) What is the minimum cost (holding and setup) of maintaining inventory on this item for the period? (d) Of this total cost, how much is carrying cost and how much is ordering cost?