Estimated demand for gold-filled lockets is 2420 per year. Ordering costs are $4
ID: 327879 • Letter: E
Question
Estimated demand for gold-filled lockets is 2420 per year. Ordering costs are $45 per order and holding costs are estimated to be 20% of the purchase price.
The following price schedule was provided to you:
Quantity per Order Price per locket Less than 1500 $0.95 1500 or more $0.85 Estimated demand for gold-filled lockets is 2420 per year. Ordering costs are $45 per order and holding costs are estimated to be 20% of the purchase price. The following price schedule was provided to you: Quantity per Order Price per locket Less than 1500$0.95 1500 or more $0.85 What is the calculated EOQ for the first price category? Express as a whole number, round up. What is the calculated EOQ for the second price category? Express as a whole number round up How many should you order? Express as a whole number, round up? What is the total cost, include inventory costs and the cost to purchase the lockets? Express as whole dollars, use standard rounding rules. Do not include the dollar sign.Explanation / Answer
Given are followingdetails :
Annual demand = D = 2420
Ordering cost =Co = $45
Annual unit holding cost for quantity slab “Less than 1500” = Ch1 = 20% of $0.95 =$0.19
Annual unit holding cost for quantity slab “1500 or more “ =Ch2 = 20% of$0.85 = $0.17
EOQ for first price category
= Square root ( 2 x Co x D / Ch1 )
= square root ( 2 x 45 x 2420 / 0.19)
= 1070.66 ( 1071 rounded to nearest whole number )
EOQ for 2nd price category
= Square root ( 2 x Co x D / Ch2 )
= Square root ( 2 x 45 x 2420 / 0.17 )
= 1131.89 ( 1132 rounded to nearest whole number )
EOQ FOR FIRST PRICE CATEGORY = 1071 GOLD FILLED LOCKETS
EOQ FOR SECOND PRICE CATEGORY = 1132 GOLD FILLED LOCKETS
It is however to be noted that calculated EOQ of 1132 for 2nd price category does not correspond to the quantity slab “1500 or more” it is supposed to belong to. Therefore , this is not the correct EOQ
Correct EOQis the first one with 1071 numbers and therefore should be ordered .
QUANTITY SHOUL DBE ORDERED = 1071 GOLD FILLED LOCKETS
Total annual ordering cost for EOQ of 1071
= Ordering cost x Number of orders
= Co x Annual demand / EOQ
= $45 x 2420 / 1071
= $101.68
Total annual inventory holding cost
= Annual unit inventory cost x average inventory
= Annual unit inventory cost x EOQ/2
= Ch x EOQ/2
= $0.19 x 1071/2
= $101.74
Annual cost to purchase the lockets = Unit price x annual demand = $0.95 x 2420 =$2299
Total annual cost
= Total annual ordering cost + Total annual inventory holding cost + annual purchase cost
= $101.68 + $101.74 + $2299
TOATL COSTS INCLUDING INVENTORY COSTS AND COSTS TO PURCHASE THE LOCKETS = $2411
EOQ FOR FIRST PRICE CATEGORY = 1071 GOLD FILLED LOCKETS
EOQ FOR SECOND PRICE CATEGORY = 1132 GOLD FILLED LOCKETS
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