Louise Manufacturing uses 2,600 switch assemblies per week and then reorders ano
ID: 2742216 • Letter: L
Question
Louise Manufacturing uses 2,600 switch assemblies per week and then reorders another 2,600. The relevant carrying cost per switch assembly is $10.50, and the fixed order cost is $1,300.
Calculate the economic order quantity. (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Louise Manufacturing uses 2,600 switch assemblies per week and then reorders another 2,600. The relevant carrying cost per switch assembly is $10.50, and the fixed order cost is $1,300.
Explanation / Answer
1) Current Annual Carrying Cost = Current Average Inventory * Unit Cost (in $) * Carrying Cost (%)
In this particular question the Carrying cost per unit is directly given in $, hence the formula would be modified to
Current Annual Carrying Cost = Current Average Inventory * Carrying Cost per Unit (in $)
Current Annual Carrying Cost = 2600/2 * $10.50
Answer – Current Annual Carrying Cost = $13650
2) Current Order cost here is $1300 per order fixed cost
In an year, total number of orders would be 52
Hence Current Annual order cost = Number of orders * Order cost
Current Annual order cost = 52 * $1300
Answer - Current Annual order cost = $67600
3) Economic Order Quantity (EOQ) = SQRT (2*D*S/H)
D = Annual Demand (Units) = 2600 per week * 52 = 135200 Unit Per Year
S = Cost per order = $1300 per order fixed
H = Holding cost (in $) = $10.50
Economic Order Quantity (EOQ) = SQRT (2*135200*$1300/$10.50)
Answer - Economic Order Quantity (EOQ) = 5786.03
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