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File Edit View History Bookmarks Window Help ezto.mheducation.com 0 ch7 problems oblems instructions Question 5 (of 6) Save& Exlt S value: 10.00 points Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its reta Fisk anticipates sales of 78,000 units per year, an ordering cost of $3 per order, and carrying costs of $1.30 per a. What is the economic ordering quantity? Economic ordering quantity units b. How many orders will be placed during the year? Number of orders orders c. What will the average inventory be? Average inventory units d. What is the total cost of ordering and carrying inventory? Total cost

Explanation / Answer

(a)Economic Order Quantity [EOQ] = 600 Units

Economic Order Quantity [EOQ]

= SQRT [ (2 × Annual Units x Ordering Cost) / Carrying Cost Per Order ]

= SQRT [ ( 2 x 78,000 x $3 ) / $1.30 ]

= SQRT [ 360,000 ]

= 600 Units

(b)Number of Orders placed during the year = 130 Orders

Number of Orders placed = Annual Sales units / Economic Order Quantity [EOQ]

= 78,000 Units / 600 Units

= 130 Orders

(c)Average Inventory = 300 Units

Average Inventory = Economic Order Quantity [EOQ] / 2

= 600 Units / 2

= 300 Units

(d)Total Cost of Ordering and Carrying Inventory = $780

Ordering costs = Number of orders × Cost per order

= 130 Orders x $3

= $390

Carrying costs= Average inventory × Carrying cost per unit

= 300 Units x $1.30

= $390

Total cost= Ordering costs + Carrying costs

= $390 + 390

= $780

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