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The procurement department of Llenroc Electronics purchases the component types from a particular supplier. The fixed cost of placing an order for any of three types of components is $100. The inventory holding cost factor, I, is .20. Other relevant data are presented in the following table.
ITEM
1
2
3
ANNUAL DEMAND RATE
10,000
30,000
20,000
UNIT COST
350
125
210
Space Reqm't (ft^2/unit)
10
15
12
The CFO has placed a $75,000 limit on the average value of inventory carried in stock. Furthermore, there is a limit on the amount of space available to store inventory of 10,000 ft2.
Find the optimal order quantity for each item type so as minimize the total average annual fixed ordering and holding costs subject to the constraints.
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