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The net requirements of an item over 5 consecutive weeks are 50, 0, 15, 20, 20. The inventory carrying cost is Re. 1 per item per week and the ordering cost is Rs. 100 per order. Starting inventory is zero. Using the Least Unit Cost Technique, the cost of the plan (in Rs.) is

1. 200
2. 250
3. 255
4. 260

Correct answer: 250

Solution

In the Least Unit Cost technique, we test how many weeks of demand should be covered by the first order and compute total cost per unit for each feasible coverage. The minimum average cost occurs for the plan whose total cost is Rs. 250. Hence, the cost of the plan is 250.

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