Question

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.

c. What will the average inventory be?

Short answer

The average inventory will be 350 units.

Step-by-step solution

Importance of average inventory

The organization evaluates its average inventory to determine the amount of inventory held by the organization at a given point in time. The average inventory is also used by the organization for tracking its inventory losses.

Calculation of average inventory

The average inventory will be 350 units.

$\begin{array}{rcl}\mathrm{Average}\mathrm{inventory}& =& \frac{\mathrm{EOQ}}{2}\\ & =& \frac{700\mathrm{units}}{3}\\ & =& 350\mathrm{units}\end{array}$