Sotero, Maria Bernaditte L.

BSBA
Task Performance
a. Compute the total inventory costs for the current situation where Ismail is following a Lot-
for-Lot ordering policy to order training materials;

Oc = $60 per order

H = $2.5 per Attendees per period
Iteration 1
Start the solution process by placing an order for 18 attendees in January
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for January

Type of cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
January. Thus, the inventory level at the beginning of January would be 18
attendees, and that at the end of January would be 0. The average inventory level
in January would, therefore, be
= 18 + 0
2
= 9 attendees
The holding cost for January would be 9 x $2.5 or $22.5

Iteration 2

Next, place an order for 12 attendees at the beginning of February that will completely meet the
demand for that month.

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for February

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
February. Thus, the inventory level at the beginning of February would be 12
attendees, and that at the end of February would be 0. The average inventory
level in February would, therefore, be
= 12 + 0
2
= 6 attendees
The holding cost for February would be 6 x $2.5 or $15
Iteration 3

Next, place an order for 16 attendees at the beginning of March that will completely meet the
demand for that month.

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
March. Thus, the inventory level at the beginning of March would be 16
attendees, and that at the end of March would be 0. The average inventory level
in March would, therefore, be
= 16 + 0
2
= 8 attendees
The holding cost for March would be 8 x $2.5 or $20

Iteration 4

Next, place an order for 19 attendees at the beginning of April that will completely meet the
demand for that month.

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for April

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
April. Thus, the inventory level at the beginning of April would be 19 attendees,
and that at the end of April would be 0. The average inventory level in April
would, therefore, be
= 19 + 0
2
= 9.5 attendees
The holding cost for April would be 9.5 x $2.5 or $23.75

Iteration 5

Next, place an order for 60 units at the beginning of February that will completely meet the
demand for that month.

Month January February March April May June

Expected attendees 18 12 16 19 21 11
 Cost incurred for May
Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of May.
Thus, the inventory level at the beginning of May would be 21 attendees, and that
at the end of May would be 0. The average inventory level in May would,
therefore, be
= 21 + 0
2
= 10.5 attendees
The holding cost for May would be 10.5 x $2.5 or $26.25

Iteration 6

Next, place an order for 60 units at the beginning of February that will completely meet the
demand for that month.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for June

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of June.
Thus, the inventory level at the beginning of June would be 11 attendees, and that
at the end of June would be 0. The average inventory level in June would,
therefore, be
= 11 + 0
2
= 5.5 attendees
The holding cost for June would be 5.5 x $2.5 or $13.75

Using the same technique, the total inventory costs, assuming that an order is placed at the beginning of
each month, would completely satisfy the demand for that month. Thus, if the lot-for-lot method would be
used, the total inventory cost would be $481.25.
Month Ordering Cost Holding Cost Total Cost
January $60 $22.50 $82.50
February $60 $15 $75
March $60 $20 $80
April $60 $23.75 $83.75
May $60 $26.25 $86.25
June $60 $13.75 $73.75
Total $360 $121.25 $481.25
 b. Compute the total inventory costs if you were to use the Part-Period Balancing Heuristics;

Iteration 1.1
Start the solution process by placing an order for 18 attendees in January.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for January

Type of cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
January. Thus, the inventory level at the beginning of January would be 18
attendees, and that at the end of January would be 0. The average inventory level
in January would, therefore, be
= 18 + 0
2
= 9 attendees
The holding cost for January would be 9 x $2.5 or $22.5

In this case, the holding cost ($22.50) is less than the order cost ($60). Therefore, the next step would be
to set the order horizon to 2 months – January and February – and place one order at the beginning of
January that would meet the requirements for both January and February.

Iteration 1.2
The expected attendees for January is18 attendees, and that for February is 12 attendees. If an
order of 30 attendees were placed at the beginning of January, the following costs would be
incurred:
Cost incurred for January and February
Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assuming the ordered quantity of 30 attendees would be received in full at the
beginning of January, the inventory level at the beginning of January is 30
attendees. The inventory level at the end of January is 12 attendees. So, the
average inventory level in January would be
= 30 + 12
2
= 21 attendees
The inventory level at the beginning of February would be 12 attendees, and at
the end of February would be 0.
So, the average inventory level in February would be
= 12 + 0
2
= 6 attendees
The total holding cost for the months of January and February would, therefore,
be:
= (21 + 6) × $2.5 = $67.50
At this point, the holding cost ($67.50) has exceeded the cost of placing one order ($60). Calculate the 𝐶𝑟
values:

For Iteration 1.1, the holding cost for ordering 18 attendees in January is $22.5 Thus, 𝐶𝑟 would be

𝐶𝑟 = |$60 - $22.5 | = $37.5

For Iteration 1.2, the holding cost for ordering 30 attendees in January is $67.50. Thus,
𝐶𝑟 = |$60 - $67.50 | = $7.5
It should be noted that in assessing 𝐶𝑟, it should be focused on comparing the difference between holding
cost and ordering cost; thus, the sign should be ignored.
Closeness factor for January-February order horizon
Parameters January January + February
Cr $37.5 $7.5
Q 18 30

As seen from the closeness factor Table of January-February, 𝐶𝑟 for the lot size of 18 attendees is smaller
for the two (2) order horizons – January and February (or the total holding cost is closer to the ordering
cost). Therefore, conclude that it is economical to place an order for 18 attendees in January, which will
help meet the demand for January alone.

Iteration 2.1

Start a new iteration after setting the starting period to March

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
March. Thus, the inventory level at the beginning of March would be 16
attendees, and that at the end of March would be 0. The average inventory level
in March would, therefore, be
= 16 + 0
2
= 8 attendees
The holding cost for March would be 8 x $2.5 or $20

The holding cost (P9) is less than the order cost (40). Therefore, the next step is to set an order horizon to
2 months – March and April – and place one order at the beginning of March, which would meet the
requirements for both these months.

Iteration 2.2

Month January February March April May June

Expected attendees 18 12 16 19 21 11
 Cost incurred for March and April
Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 35 attendees in full at the beginning of
March, the inventory level at the beginning of March is 35 attendees. The
inventory level at the end of March is 16 attendees.
So, the average inventory level in March would be
= 35 + 16
2
= 25.5 attendees
The inventory level at the beginning of April would be 19 attendees, and at the
end of April would be 0.
So, the average inventory level in April would, therefore, be
= 19 + 0
2
= 9.5 attendees
The total holding cost for the months of March and April would , therefore, be:
= (25.5 + 9.5) × $2.5 = $87.5

Since the total holding cost has exceeded the order cost, check the 𝐶𝑟 values:

For Iteration 2.1, the holding cost for ordering 16 attendees in March is $20. Thus, 𝐶𝑟 would be
𝐶𝑟 = |$60 - $20| = $40

For Iteration 2.2, the holding cost for ordering 35 attendees in March is $87.50. Thus,
𝐶𝑟 = |$60 - $87.50| = $27.50

Closeness factor for March and April order horizon

Parameters March March + April
Cr $40 $27.50
Q 16 35

As seen from above, the 𝐶𝑟 for the lot size of 35 attendees is smaller (meaning, the holding cost is closer
to the ordering cost); thus, it is economical to place an order for 35 attendees in March, which will help
meet the demand for March only.

Iteration 3.1

Start a new iteration after setting the starting period to May

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for May

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
March. Thus, the inventory level at the beginning of May would be 21 attendees,
 and that at the end of May would be 0. The average inventory level in May
would, therefore, be
= 21 + 0
2
= 10.5 attendees
The holding cost for March would be 10.50 x $2.5 or $26.25

The holding cost ($26.25) is less than the order cost ($60). Therefore, the next step is to set an order
horizon to 2 months –May and June– and place one order at the beginning of May, which would meet the
requirements for both these months

Iteration 3.2

Cost incurred for May and June

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60.
Holding Cost Since we receive the ordered quantity of 32 attendees in full at the beginning of
May, the inventory level at the beginning of May is 32 attendees. The inventory
level at the end of May is 21 attendees.
So, the average inventory level in March would be
= 32 + 21
2
= 26.5 attendees
The inventory level at the beginning of June would be 11 attendees, and at the
end of June would be 0.
So, the average inventory level in April would, therefore, be
= 11 + 0
2
= 5.5 attendees
The total holding cost for the months of May and June would, therefore, be:
= (26.5+ 5.5) × $2.5 = $80

Since the total holding cost has exceeded the order cost, check the 𝐶𝑟 values:

For Iteration 3.1, the holding cost for ordering 21 attendees in May is $26.25. Thus, 𝐶𝑟 would be
𝐶𝑟 = |$60 − $26.25| = $33.75

For Iteration 3.2, the holding cost for ordering 32 attendees in May is $80. Thus,
𝐶𝑟 = |$60 − $80| = $20

Closeness factor for March and April order horizon

Parameters May May + June
Cr $33.75 $20
Q 21 32

As seen from above, the 𝐶𝑟 for the lot size of 32 attendees is smaller (meaning, the holding cost is closer
to the ordering cost); thus, it is economical to place an order for 50 attendees in May, which will help
meet the demand for May and June.
The solution produced by the part-period balancing method suggests that orders placed in January should
be 18 attendees, in March should be 16 attendees, and in May should be 21 attendees. The total inventory
cost for the planning horizon is 319.50.

Month Order Quantity Ordering Cost Holding Cost Total Cost

January 18 $60 $67.5 $127.50
February
March 16 $60 $87.5 $147.50
April
May 21 $60 $80 $140
June
Total $180 $235 $415

c. Compute the total inventory costs if you were to use the Silver-Meal Heuristics;

Oc = $60 per order

H = $2.5 per Attendees per period

Iteration 1.1
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for January

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
January. Thus, the inventory level at the beginning of January would be 18 units,
and that at the end of January would be 0.
The average inventory level in January would, therefore, be
= 18 + 0
2
= 9 attendees
The holding cost for January would be 9 x $2.5 or $22.5
Total inventory cost The total inventory cost is $60 + $22.5 = $82.5
Per Period Cost (PPC) Since this cost is incurred over one period (January), the PPC is
= $82.5
1
= $82.5

Iteration 1.2

The next step would be to set an order horizon to 2 months – January and February – and place
one order at the beginning of January that would meet the requirements for both these months.

Month January February March April May June

Expected attendees 18 12 16 19 21 11
 Cost incurred for January and February
Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assuming the ordered quantity of 30 attendees would be received in full at the
beginning of January, the inventory level at the beginning of January is 30
attendees. The inventory level at the end of January is 12 units. So, the average
inventory level in January would be
= 30 + 12
2
= 21 attendees
The inventory level at the beginning of February would be 12 attendees, and at
the end of February would be 0.
So, the average inventory level in February would be
= 12 + 0
2
= 6 attendees
The total holding cost for the months of January and February would, therefore,
be:
= (21 + 6) × $2.5 = $52.5
Total inventory cost $60 + $52.5= $112.5
Per Period Cost (PPC) Since this cost is incurred over two (2) periods (January and February), the PPC
is
= $112.5
2
= $56.25

At this stage, the PPC for order horizon January - February is lower than the PPC for January. Therefore,
continue batching demands. Next, set the order horizon to January-February-March, with the order being
received at the beginning of January.
Iteration 1.3
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Costs incurred for January, February, and March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 46 attendees in full at the beginning of
January, the inventory level at the beginning of January would be 46 attendees.
The inventory level at the end of January is 28 attendees.
So, the average inventory level in March would be
= 46 + 28
2
= 74 attendees
The inventory level at the beginning of February would be 28 attendees. The
inventory level at the end of February is 16 attendees.
So, the average inventory level in February would be
= 28 + 16
2
= 22 attendees
 The inventory level at the beginning of March would be 21 attendees. The
inventory level at the end of March is 0 units.
So, the average inventory level in May would be
= 21 + 0
2
= 10.50 attendees
The total holding cost for the months of January, February, and March would,
therefore, be
= (74 + 22 + 10.50 ) × $2.5 = $266.25
Total inventory cost The total inventory cost is $60 + $266.25 = $326.25
Per Period Cost (PPC) Since this cost is incurred over three period (January, February, March), the PPC
is
= $326.25
3
= $108.75

At this stage, the PPC for order horizon January, February, and March is greater than the PPC for
January-February. Based on the Silver-Meal heuristic, conclude that it is optimal to place one order of 30
attendees at the beginning of January. Next, set the order horizon to March with the order being received
at the beginning of March.
Iteration 2.1
Start the next iteration by setting the start period to March. The total demand for March is 85 units.

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
March. Thus, the inventory level at the beginning of March would be 16
attendees, and that at the end of March would be 0.
The average inventory level in March would, therefore, be
= 16 + 0
2
= 8 attendees
The holding cost for March would be 8 × $2.5 or $20
Total inventory cost The total inventory cost is $60 + $20 = $80
Per Period Cost (PPC) Since this cost is incurred over one period (February), the PPC is
= $80
1
= $80

Iteration 2.2
Take an order horizon of 2 months – March and April.

Month January February March April May June

Expected attendees 18 12 16 19 21 11
 Cost incurred for March and April
Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 35 attendees in full at the beginning of
March, the inventory level at the beginning of March is 35 attendees. The
inventory level at the end of March is 19 attendees.
So, the average inventory level in March would be
= 35 + 19
2
= 27 attendees
The inventory level at the beginning of April would be19 attendees, and at the
end of April would be 0.
So, the average inventory level in February would be
= 19 + 0
2
= 9.5 attendees
The total holding cost for the months of March and April would, therefore, be:
= (27 + 9.5) × $2.5 = $91.25
Total inventory cost $60 + $91.25 = $151.25
Per Period Cost (PPC) Since this cost is incurred over two (2) periods (March and April), the PPC is
= $151.25
2
= $151.25

The PPC for the order horizon of March-April is greater than the PPC for March. Therefore, the optimal
order quantity is demand for March alone (16 attendees).

Iteration 3.1

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for April

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
April. Thus, the inventory level at the beginning of April would be 19 attendees,
and that at the end of March would be 0.
The average inventory level in March would, therefore, be
= 19 + 0
2
= 9.5 attendees
The holding cost for March would be 9.5 × $2.5 or $23.75
Total inventory cost The total inventory cost is $60 + $23.75 = $83.75
Per Period Cost (PPC) Since this cost is incurred over one period (February), the PPC is
= $83.75
1
= $83.75
 Iteration 3.2
Take an order horizon of 2 months –April and May.

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for April and May

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 40 attendees in full at the beginning of
April, the inventory level at the beginning of April is 40 attendees. The inventory
level at the end of April is 21 attendees.
So, the average inventory level in March would be
= 40 + 21
2
= 30.5 attendees
The inventory level at the beginning of May would be 21 attendees, and at the
end of May would be 0.
So, the average inventory level in February would be
= 21 + 0
2
= 10.5 attendees
The total holding cost for the months of April and May would, therefore, be:
= (30.5 + 10.5) × $2.5 = $102.5
Total inventory cost $60 + $102.5 = $162.5
Per Period Cost (PPC) Since this cost is incurred over two (2) periods (March and April), the PPC is
= $162.5
2
= $81.25

At this stage, the PPC for order horizon April - May is lower than the PPC for April. Therefore, continue
batching demands. Next, set the order horizon to April – May - June, with the order being received at the
beginning of April.
Iteration 3.3
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Costs incurred for April, May, June

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 51 attendees in full at the beginning of
April, the inventory level at the beginning of April would be 51 attendees. The
inventory level at the end of April is 32 attendees.
So, the average inventory level in March would be
= 51 + 32
2
= 41.5 attendees
 The inventory level at the beginning of May would be 32 attendees. The
inventory level at the end of May is 11 attendees.
So, the average inventory level in May would be
= 32 + 11
2
= 21.5 attendees
The inventory level at the beginning of June would be 11 attendees. The
inventory level at the end of June is 0 units.
So, the average inventory level in May would be
= 11 + 0
2
= 5.50 attendees
The total holding cost for the months of April, May, and June would, therefore,
be
= (41.5 + 21.5 + 5.50 ) × $2.5 = $171.25
Total inventory cost The total inventory cost is $60 + $171.25 = $231.25
Per Period Cost (PPC) Since this cost is incurred over three period (April, May,June), the PPC is
= $231.25
3
= $77.08

At this stage, the PPC for order horizon April – May – June is lower than the PPC for April - May.
Therefore, the optimal order quantity is the demand for April alone (19 Attendees).
Iteration 4.1

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Start the new iteration after setting the starting period to June. The demand for June is 11 attendees. Since
the demands for the next months are unknown, stop the lot-sizing procedure. Then, assume that it is
economical to place an order for 11 attendees at the beginning of June.

Cost incurred for June

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of June.
Thus, the inventory level at the beginning of June would be 11 attendees, and that
at the end of June would be 0.
The average inventory level in March would, therefore, be
= 11 + 0
2
= 5.5 attendees
The holding cost for March would be 5.5 × $2.5 or $13.75
Total inventory cost The total inventory cost is $60 + $13.75 = $73.75
Solution Summary:
Month Order Quantity Ordering Cost Holding Cost Total Cost
January 18 $60 $52.5 $112.50
February
March 16 $60 $20 $80
April 19 $60 $102.5 $162.5
May
June 11 $60 $13.75 $73.75
TC $240 $188.75 $428.75

d. Compute the total inventory costs if you were to use the Least Unit Cost Heuristics;
Iteration 1.1
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for January

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
January. Thus, the inventory level at the beginning of January would be 18 units,
and that at the end of January would be 0.
The average inventory level in January would, therefore, be
= 18 + 0
2
= 9 attendees
The holding cost for January would be 9 x $2.5 or $22.5
Total inventory cost The total inventory cost is $60 + $22.5 = $82.5
Per Unit Cost (PUC) The total demand for this period is 18 units. The Per Unit Cost (PC) is
= $82.5
18
= $4.583

Iteration 1.2
The next step would be to set an order horizon to two (2) months – January and February – and place
one order at the beginning of January that would meet the requirements for both these months.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for January and February

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assuming the ordered quantity of 30 attendees would be received in full at the
beginning of January, the inventory level at the beginning of January is 30
 attendees. The inventory level at the end of January is 12 units. So, the average
inventory level in January would be
= 30 + 12
2
= 21 attendees
The inventory level at the beginning of February would be 12 attendees, and at
the end of February would be 0.
So, the average inventory level in February would be
= 12 + 0
2
= 6 attendees
The total holding cost for the months of January and February would, therefore,
be:
= (21 + 6) × $2.5 = $52.5
Total inventory cost The total inventory cost is $60 + $52.5= $112.5
Per Unit Cost (PUC) The per unit Cost (PC) is
= $112.5
30
= $3.75

Since the per-unit cost (PUC) for the order horizon of January and February took together is less than the
PUC for the order horizon for January alone, continue this iteration by combining the demand for
January, February, and March in one order, placed at the beginning of January.
Iteration 1.3
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Costs incurred for January, February, and March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 46 attendees in full at the beginning of
January, the inventory level at the beginning of January would be 46 attendees.
The inventory level at the end of January is 28 attendees.
So, the average inventory level in March would be
= 46 + 28
2
= 74 attendees
The inventory level at the beginning of February would be 28 attendees. The
inventory level at the end of February is 16 attendees.
So, the average inventory level in February would be
= 28 + 16
2
= 22 attendees
The inventory level at the beginning of March would be 21 attendees. The
inventory level at the end of March is 0 units.
So, the average inventory level in May would be
= 21 + 0
2
= 10.50 attendees
 The total holding cost for the months of January, February, and March would,
therefore, be
= (74 + 22 + 10.50 ) × $2.5 = $266.25
Total inventory cost The total inventory cost is $60 + $266.25 = $326.25
Per Unit Cost (PUC) The total demand is 46 attendees. The Per Unit Cost (PUC) is
= $326.25
46
= $7.092

The PUC for order horizon January-February-March is greater than the PUC for the two-period order
horizon of January-February. Therefore, the optimal order quantity is the sum of the order quantities for
January and February, which is 30 attendees.
Iteration 2.1

Set the order horizon to March because the demand for March was not included in the previous order.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for March

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Assume that the ordered quantity will be received in full at the beginning of
March. Thus, the inventory level at the beginning of March would be 16
attendees, and that at the end of March would be 0.
The average inventory level in March would, therefore, be
= 16 + 0
2
= 8 attendees
The holding cost for March would be 8 × $2.5 or $20
Total inventory cost The total inventory cost is $60 + $20 = $80
Per Unit Cost (PUC) The total demand is 16 attendees. The Per Unit Cost (PUC) is
= $80
16
= $5

Iteration 2.2
Next, set the order horizon to two (2) periods – March and April.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for March and April

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 35 attendees in full at the beginning of
March, the inventory level at the beginning of March is 35 attendees. The
inventory level at the end of March is 19 attendees.
So, the average inventory level in March would be
= 35 + 19
 2
= 27 attendees
The inventory level at the beginning of April would be19 attendees, and at the
end of April would be 0.
So, the average inventory level in February would be
= 19 + 0
2
= 9.5 attendees
The total holding cost for the months of March and April would, therefore, be:
= (27 + 9.5) × $2.5 = $91.25
Total inventory cost $60 + $91.25 = $151.25
Per Unit Cost (PUC) Since this cost is incurred over two (2) periods (March and April), the PUC is
= $151.25
35
= $4.321

Since the per-unit cost (PUC) for the order horizon of March and April took together is less than the PUC
for the order horizon for March alone, continue this iteration by combining the demand for March, April,
and May in one order, placed at the beginning of March.
Iteration 2.3
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Costs incurred for March, April, and May

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 56 attendees in full at the beginning of
March, the inventory level at the beginning of March would be 56 attendees.
The inventory level at the end of March is 40 attendees.
So, the average inventory level in March would be
= 56 + 40
2
= 48 attendees
The inventory level at the beginning of April would be 40 attendees. The
inventory level at the end of April is 19 attendees.
So, the average inventory level in February would be
= 40 + 19
2
= 29.5 attendees
The inventory level at the beginning of May would be 21 attendees. The
inventory level at the end of May is 0 units.
So, the average inventory level in May would be
= 21 + 0
2
= 10.50 attendees
The total holding cost for the months of March, April, and May would, therefore,
be
= (48 + 29.5 + 10.50) × $2.5 = $220
Total inventory cost The total inventory cost is $60 + $220 = $280
Per Unit Cost (PUC) The total demand is 56 attendees. The Per Unit Cost (PUC) is
= $280
56
= $5

The PUC for order horizon March – April - May is greater than the PUC for the two-period order horizon
of March - April. Therefore, the optimal order quantity is the sum of the order quantities for March and
April which is 35 attendees.

Iteration 3.1
Set the order horizon to May because the demand for May was not included in the previous order.
Month January February March April May June
Expected attendees 18 12 16 19 21 11

Cost incurred for May

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
0Holding Cost Assume that the ordered quantity will be received in full at the beginning of May.
Thus, the inventory level at the beginning of May would be 16 attendees, and that
at the end of May would be 0.
The average inventory level in March would, therefore, be
= 21 + 0
2
= 10.5 attendees
The holding cost for March would be 10.5 × $2.5 or $26.25
Total inventory cost The total inventory cost is $60 + $26.25 = $86.25
Per Unit Cost (PUC) The total demand is 21 attendees. The Per Unit Cost (PUC) is
= $86.25
21
= $4.107 or $4.11

Iteration 3.2

Next, set the order horizon to two (2) periods – May and June

Month January February March April May June

Expected attendees 18 12 16 19 21 11

Cost incurred for May and June

Type of Cost Description
Ordering Cost Since the order is placed, we incur an ordering cost of $60
Holding Cost Since we receive the ordered quantity of 32 attendees in full at the beginning of
May, the inventory level at the beginning of May is 32 attendees. The inventory
level at the end of May is 11 attendees.
So, the average inventory level in March would be
= 32 + 11
2
= 21.5 attendees
 The inventory level at the beginning of June would be 11 attendees, and at the
end of June would be 0.
So, the average inventory level in June would be
= 11 + 0
2
= 5.5 attendees
The total holding cost for the months of May and June would, therefore, be:
= (21.5 + 5.5) × $2.5 = $67.5
Total inventory cost $60 + $67.5 = $127.5
Per Unit Cost (PUC) Since this cost is incurred over two (2) periods (May and June), the PUC is
= $127.5
32
= $3.984

Since the per-unit cost (PUC) for the order horizon of May and June took together is less than the PUC
for the order horizon for May alone, stop the solution process here. The least unit cost-based solution
summary table below suggests placing an order for 30 attendees in January, 35 attendees in March, 21
attendees in May.
Month Order Quantity Ordering Cost Holding Cost Total Cost
January 30 $60 $52.5 $112.50
February
March 35 $60 $91.25 $151.25
April
May 21 $60 $67.5 $127.5
June
TC $180 $211.25 $391.25