The profit difference between the current order and EOQ order for this item is $
ID: 2462933 • Letter: T
Question
The profit difference between the current order and EOQ order for this item is $451. The current EOQ for this item if it were applied is not 10. The current average inventory for this item is not 2.5. The annual orders under EOQ for this item is 20. The annual shipping cost under the supplier's offer for this item is not $5,000. The current the annual order cost for this item is $1,800. The annual inventory carrying cost under EOQ for this item is not $899. The average inventory under the supplier's offer will change (increase, no change, or decrease) for this item as compared with the carrier's offer is 150.00%. the profit difference between the highest and lowest is $28,219. The annual shipping cost under the carrier's offer is for this item is $6,000.Explanation / Answer
Answer:
a. the profit difference between the current order and EOQ order for this item is $451 - CORRECT
EOQ = (2 x Annual Demand x Order Cost per order / Carrying Cost per unit per annum)1/2
Annual Demand = 200 Units
Order cost per order = $45
Carrying Cost per unit per annum = $899 x 0.20 = $179.8
= [(2x200x45) / 179.8)]1/2
= 10 Units
Calculation of Total Ordering Cost and Total Carrying Cost
At Current
At EOQ
Total Ordering Cost
$1,800
$900
Total Carrying Cost
$450
$899
Total Cost for comparison
$2,250
$1,799
Profit Difference or Difference in Cost between Current order and EOQ order is = $2,250 - $1,799 = $451
Ordering Cost
At Current
At EOQ
Total Demand (in units)
200
200
Order Quantity (Units)
5
10
Total No. of orders in a year = Total Demand / Order quantity per order (A/B)
40
20
Ordering Cost per order (given)
$45
$45
Total Ordering Cost (D x C)
$1,800
$900
Carrying Cost
At Current
At EOQ
Carrying Cost per unit per annum
$179.80
$179.80
Order Size (in units)
5
10
Total Carrying Cost = 1/2 x lot size x carrying cost per unit per annum
$450
$899
At Current
At EOQ
Total Demand
200
200
Total Material Cost @ $899
$179,800
$179,800
b. the current EOQ for this item if it were applied is not 10 ---- INCORRECT Statement
As calculated above the EOQ quantity = 10 Units per order.
c. The current average inventory for this item is not 2.5 – INCORRECT Statement
The current average inventory for this item is 2.5 units
Average Inventory = ½ x current order lot size = ½ x 5 = 2.5 Units
d. the annual order under EOQ for this item is 20 --- CORRECT.
Under EOQ the number of annual order = Annual Demand / EOQ = 200 / 10 = 20 Order
Please ask separate questions for rest requirement with this data of question..(thank you & happy to help you)
At Current
At EOQ
Total Ordering Cost
$1,800
$900
Total Carrying Cost
$450
$899
Total Cost for comparison
$2,250
$1,799
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