Dlagnostic Suppliles has expecied sales of 175,000 unlts per year, carrying coet

Question

Dlagnostic Suppliles has expecied sales of 175,000 unlts per year, carrying coets of $5 per unit, and an ordering cost of $7 per order. a. What lis the economic ordering quantity? Economic ordering quantity units b-1. What ls the average Inventory? Average Inventory uns b-2. What ls the total carrying cost? Total carrying coet Assume an ada tional 70 unlta of inventory will be required as eafety ock. C-1. What wll the new average Inventory be? Average inventory unite c-2. What wll the new total carrying cost be? Total carrylng coet

Explanation / Answer

A) Economic Order quantity (EOQ)= 2SO/C Here annual demand (S) =175000 unit Ordering cost (O) = $7 per order Carrying Cost   C= $5 per unit EOQ = 2*175000*7/5 EOQ = 490000 EOQ= 700 units b1) Average inventory is ascertained by dividing EOQ BY 2. 700/2 350 b2) total carrying cost is by multiplying C with average inventory carrying cost = 350units*$5 carrying cost = $1750 c1) new average inventory be Q/2+ Safety stock = 350units +70 units new average inventory = 420 units c2) New total carrying cost is 420units *$ 5 =$2100 therefore the carrying cost is $2100

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