A firm with an annual demand of 50,000 units has ordering costs of $125 per orde

Question

A firm with an annual demand of 50,000 units has ordering costs of $125 per order and carrying costs of $2.00 per unit per year. a) If the firm places just one order per year, what are total ordering and inventory costs? b) What is the most economical (cost-minimizing) quantity to order? c) How many orders per year should be placed? d) What are total ordering and inventory costs for the year under this EOQ plan? e) How much does the firm save because of ordering the EOQ instead of all 50,000 units at once?

Explanation / Answer

a) ordering cost = 125

inventory cost = 2 * (50000/2) = 50000

b) EOQ = sqrt(2*D*S/C)

= sqrt(2*50000*125/2) = 2500

c) number of order = 50000/2500 = 20

d) total cost = 2 * 2500/2 + 125 *20

= 5000

e) profit = 50000 -5000 = 45000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.