Ottis Inc uses 632,025 Plastic housing units each year in its production of pape
ID: 2540278 • Letter: O
Question
Ottis Inc uses 632,025 Plastic housing units each year in its production of paper shredders. The cost of placing an order is $36. The cost of holding one unit of inventory for one year is $18. Currently Ottis places 159 orders of 3,975 plastic housing units per year.
1. Compute the economic order quanity.
2. Computer the ordering, carrying, and Total costs for the EOQ.
3.How much money does the EOQ policy save the company over the policy of purchasing 3,975 plastic housing units per order? Round your answer to the nearest dollar.
Explanation / Answer
Answer 1
Economic order quanity = SQRT (2 * annual demand * cost per order / Carrying cost per order)
= SQRT (2 * 632,025 units * $36 / $18) = 1,590 units
Answer 2
Ordering cost = ( Annual demand / EOQ) * Cost of placing an order
= (632,025 units / 1,590 units) * $36 = $14,310
Carrying cost = (EOQ / 2) * cost of holding = (1,590 / 2) * $18 = $14,310
Total costs = Ordering cost + Carrying cost = $14,310 + $14,310 = $28,620
Answer 3
Computation of Total cost of 3,975 units
Total saving due to EOQ policy = $41,499 - $28,620 = $12,879
Number of orders = 632,025 units / 3,975 units 159 orders Cost of order = 159 orders * $36 A $5,724 Carrying cost = (3,975 units / 2 ) * $18 B $35,775 Total cost (A+B) $41,499Related Questions
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