1 of 12 Thomas Kratzer is the purchasing manager for the headquarters of a large

Question

1 of 12 Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation Thomas's fastest-moving inventory item has a demand of 6,666 units per year. The cost of each unit is $100, and the inventory carrying cost is $10 per unit per year. The average ordering cost is $30 per order. It takes about 5 days for an order to arrive, and the demand for 1 week is 133.32 units. (This is a corporate operation, and there are 250 working days per year.) Assuming that EOQ equals 200 and that the order quantity selected by this company is 190, what is annual ordering cost? A$960 B$900 C$1,050 D$810

Explanation / Answer

Demand = 6666

Carrying Cost = 10

Ordering Cost = 30

Lead = 5 days

EOQ = 200

Order Quantity = 190

Annual Order Cost = No. of Order * Ordering Cost = (Annual Demand / Order Quantity) * Ordering Cost

=6666*30/190 = 1052

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