This problem is a practice for the test next week. I have all the formulas but I am not sure how to use it.
Could you please help me with this problem?
A large law firm uses an average of 40 packages of copier paper a day. The firm operates 260 days a year. Storage and Handling costs for the paper are $3 per year per pack and it costs approximately $6 to order and receive a shipment of paper.
a. What order size would minimize total inventory costs?
b. What is the total costs of inventory?
c. The office manager is currently using an order size of 200 packages. The partners of the firm expect the office to be managed in a "cost effective manner". Would you recommend that the optimal order size or the current policy of 200 packages be used? Explain quantitatively.