A store sells 2500 packages of a dozen paper towel rolls per year. It costs $10 per year to store one such package. There is a fixed $20

cost every time the store reorders and there is $9 cost per package.

How many times per year should the store reorder and what is the lot

size in order to minimize inventory costs?

The business should order the inventory 25 times per year in a lot of 100 to minimize the inventory costs.

Explanation:

To calculate the lot size that minimizes the inventory cost, we will calculate the economic order quantity (EOQ) which is the order quantity that a business should order in each order to minimize the inventory related costs. The EOQ can be calculated using the attached formula,

EOQ = √[(2 * 2500 * 20) / 10]

EOQ = 100 packages

The lot size for each order should be 100 to minimize the inventory costs.

We can calculate the number of reorders per year by dividing the total annual demand by the EOQ.

Number of orders = 2500 / 100

Number of orders = 25 times