Problem 20-21 Item X is a standard item stocked in a company\'s inventory of com

Question

Problem 20-21 Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 1,800 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $10 per unit of average inventory. Every time an order is placed for more item X, it costs $10. a. Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number.) Order size b. What is the annual cost for ordering item X? (Round your answer to 2 decimal places.) Ordering cost c. What is the annual cost for storing item X? (Round your answer to 2 decimal places.) Holding cost

Explanation / Answer

Answer:a D=1800 units per year

C=$25 per unit

H=$10 per unit per year

S=$10 per order

EOQ=Square root of [2DS/H]

=Square root of [2*1800*10/$10]

=60 units

Answer:b Annual ordering cost=(D/Q)*S

=(1800/60)*$10

=$300

Answer:C Annual Holding cost=(Q/2)*H

(60/2)*$10

=$300

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.