Ordering Cost, Carrying Cost, and Total Inventory Related Cost La Cucina Company

Question

Ordering Cost, Carrying Cost, and Total Inventory Related Cost La Cucina Company sells kitchen supplies and housewares. Lava stone is used in production of molcajetes (mortars quacamole) and is purchased from external suppliers. Each year, 8,500 pounds of lava stone is used; it is Cucina $5 to place the order, and carrying cost is $2 per pound per year. and pestles used in the making of currently purchased in lots of 500 pounds. It costs La 1. How many orders for lava stone does La Cucina place per year? Round your answer to the nearest whole amount. orders per year 2. What is the total ordering cost of lava stone per year? 3. What is the total carrying cost of lava stone per year? 4 What is the total cost of La Cucinas inventory policy for lava stone per year? work saved O2

Explanation / Answer

Answer:

1 Number of Orders = Annual Number of Units Used/Number of Units in an Order = 8,500 pounds / 500 pounds per lot Number of Order = 17 orders per year 2 Total Ordering Cost = Number of Orders *Cost per Order = 17 orders x $5 per order Total Ordering Cost = $85 3 Total Carrying Cost = Average Number of Units in Inventory * Cost of Carrying One Unit in Inventory EOQ = Number of Units in Inventory = ((2* ordering cost per unit*total units in a year/(carrying cost per unit))) =2*5*8500/2 = 206 Average No. of units in Inventory = EOQ / 2 = 206/2 = 103 units Thus, Total Carrying cost = 103 units * $2 carrying cost per unit = $206 4 Total Inventory Related cost = Total Ordering cost + Total Carrying cost = $85 + $206 = $291

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