Abstract: A novel method of optimizing an inventory lot size at least includes: a) determining fixed and variable costs associated with a given lot size; b) determining a sale price associated with the given lot size; c) determining a profit margin (PM) based on the results in a) and b); d) determining an average inventory level (AIL); e) determining a cost of carrying inventory (CCI) associated with the given lot size; f) determining a net present value (NPV) based on a predetermined mathematical relationship between the determined PM, AIL and CCI; g) determining NPV changes (?NPV) with incremental changes in lot size; and h) determining an optimal lot size based on the results in g).