Fhloston Manufacturing uses 2,500 switch assemblies per week and then reorders a

Question

Fhloston Manufacturing uses 2,500 switch assemblies per week and then reorders another 2,500. The relevant carrying cost per switch assembly is $10.00, and the fixed order cost is $1,250.

What is the EOQ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Fhloston Manufacturing uses 2,500 switch assemblies per week and then reorders another 2,500. The relevant carrying cost per switch assembly is $10.00, and the fixed order cost is $1,250.

Explanation / Answer

Annual Requirement of raw materials = 2500 * 52 weeks = 130,000 units

Annual carrying costs = Average inventory * Carrying cost per unit per year

= 2500/2 * 10

= $ 12,500

Annual ordering costs = No of orders * cost per order

= 130,000 / 2500 * 1,250

= $ 65,000

EOQ = Sq root of 2AB/C

= (2 * 130,000 * 1250 / 10)1/2

= 5,700 units

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