Redan Manufacturing uses 1,600 switch assemblies per week and then reorders anot

Question

Redan Manufacturing uses 1,600 switch assemblies per week and then reorders another 1,600. The relevant carrying cost per switch assembly is $5.50, and the fixed order cost is $800.

Calculate the economic order quantity. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Redan Manufacturing uses 1,600 switch assemblies per week and then reorders another 1,600. The relevant carrying cost per switch assembly is $5.50, and the fixed order cost is $800.

Explanation / Answer

Units carried = Half of order size

= 1600 / 2

= 800

Carrying cost = Units carried x Carrying cost per unit

= 800 x $5.50

= $4,400

No. of Orders during the year = As there is one order for one week, there will be 52 orders for whole year.

Ordering cost = No. of orders x Fixed order cost per order

= 52 x $800

= $41,600

Annual demand = Weekly Consumption x No. of weeks

= 1600 x 52

= 83200 units

Economic Order Quantity = ((2 x Annual Demand x Fixed Order Cost per order) / Carrying cost per unit per year)1/2

= ((2 x 83200 x 800) / 5.50)1/2

= (24203636.36)1/2

= 4920 units

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