13. Fisk Corporation is trying to improve its inventory control system and has i
ID: 2743146 • Letter: 1
Question
13. Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.20 per unit.
a. What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory be?
d. What is the total cost of ordering and carrying inventory?
Explanation / Answer
Answer to Part a )
EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order)
EOQ = SQRT (2 * 75,000 * 8/1.20)
EOQ = SQRT (1,000,000)
EOQ = 1000 units
Answer to Part b)
No of Orders = Total Quanity / EOQ
No of Orders= 75,000 / 1,000
No of Orders = 75
Answer to Part c)
Average Inventory = EOQ /2
Average Inventory = 1,000 / 2
Average Inventory = 500 Units
Answer to Part d)
Ordering cost = No of Orders * Ordering Cost
Ordering cost = 75 * 8
Ordering cost = $ 600
Carrying Cost = Average Inventory * Carring cost per unit
Carrying Cost = 500 * 1.20
Carrying Cost = $ 600
Total cost of ordering and carrying inventory = $ 600 + $ 600 = $ 1,200
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