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Inventory is a current asset account found on the balance sheet that includes all raw materials, work-in-process, and finished goods that a company has accumulated. The Economic Order Quantity is a fixed point meant to assist businesses in lowering the cost of purchasing and storing inventory. The cost of acquiring inventory decreases as the order volume increases owing to purchasing economies of scale. However, as the amount of the inventory grows, so does the expense of storing the inventory. EOQis the exact moment at which both of these inversely associated expenses are minimized.

There are various types of inventory models in inventory models in inventory management, they are as follows:

1. Single period inventory model
2. Fixed-order quantity model
3. Fixed-time period model

Inventory table of both the parts

Calculation of Optimal Ordering Quantity for part Tegdiws

Given,

Annual demand (A) = 10,000 units

Ordering cost per unit (S) = $ 150

Holding cost (H) = 0.20 × $ 10

$$\begin{gathered} \mathrm{EOQ}=\sqrt{\frac{2×\mathrm{A}×\mathrm{S}}{\mathrm{H}}} \\ \mathrm{where}, \\ \mathrm{A}=\mathrm{Annual}\mathrm{demand} \\ \mathrm{S}=\mathrm{Ordering}\mathrm{cost}\mathrm{per}\mathrm{unit} \\ \mathrm{H}=\mathrm{Carrying}\mathrm{cost}\mathrm{per}\mathrm{unit} \end{gathered}$$

$\begin{array}{rcl}\mathrm{EOQ}& =& \sqrt{\frac{2×\mathrm{A}×\mathrm{S}}{\mathrm{H}}}\\ & =& \sqrt{\frac{2×10,000×\$150}{0.20×\$10}}\\ & =& 1,224.75\mathrm{or}1,225\mathrm{units}\end{array}$

So, the Optimal ordering Quantity is 1,225 units

The reorder point is the sum of expected demand during the lead time and the safety stock. It is calculated using the following formula:

$\mathrm{R}=\mathrm{dL}+\mathrm{SS}$

Here,

R is the reorder point.

d is the average daily demand and

SS is a safety stock

Substituting the values from the Table in the formula

$\begin{array}{rcl}\mathrm{R}& =& \mathrm{dL}+\mathrm{SS}\\ & =& \left(\frac{10,000}{52}×4\right)+55\\ & =& 824.23\mathrm{or}824\mathrm{units}\end{array}$

Hence, the reorder point for Tegdiws is 824 units.

Thus, the inventory control system for part Tegdiws becomes 1,225 units of part Tegdiws must be ordered when the inventory level drops to 824 units.

The inventory control system for Widgets is a fixed-time period model. In the inventory model, it is specified that the inventory is ordered at a predetermined schedule. The time interval between the orders is the same and fixed but the order quantity changes. The order quantity for a fixed-time period model for part Widgets is calculated using the following formula :

$$\begin{gathered} \text{q = d ( T + L) + SS - on hand inventory} \\ \text{here,} \\ \text{q = Order quntity} \\ \text{d = Average weekly demand} \\ \text{T = Review period} \\ \text{L = lead time} \\ \text{SS = Safety stock} \end{gathered}$$

Substituting the values from Table 1 in the above formula :

$\begin{array}{rcl}\mathrm{q}& =& \mathrm{d}\left(\mathrm{T}+\mathrm{L}\right)+\mathrm{SS}-\mathrm{on}\mathrm{hand}\mathrm{inventory}\\ \mathrm{q}& =& \frac{5000}{52}×\left(3+1\right)+5-\mathrm{I}\\ \mathrm{q}& =& 384.62+5-\mathrm{I}\\ \mathrm{q}& =& 390-\mathrm{I}\end{array}$

Thus, the inventory control system for part Widgets is computed above