Question

Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of \(6 per order, and carrying costs of \)2.40 per pipe.

c. What will the average inventory be?

Short answer

The average inventory will be 300 units.

Step-by-step solution

Meaning of average inventory

The amount of inventory that an organization is estimated to have at a given point in time is called average inventory. This amount is calculated by dividing the opening and closing balance of inventory by 2.

Calculation of average inventory

The average inventory will be 300 units.

$\begin{array}{rcl}\mathrm{Average}\mathrm{inventory}& =& \frac{\mathrm{EOQ}}{2}\\ & =& \frac{600\mathrm{units}}{2}\\ & =& 300\mathrm{units}\end{array}$