A produce distributor uses 790 packing crates a month, which it purchases at a c

Question

A produce distributor uses 790 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month.

How much could the firm save annually in ordering and carrying costs by using the EOQ? (Round intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

A produce distributor uses 790 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month.

How much could the firm save annually in ordering and carrying costs by using the EOQ? (Round intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Economic order quantity (EOQ) = (2FD/C)1/2

Fixed cost per order = $28

F = For one year, ordering costs = 28*12 = $336

D = Demands in units per year = 790units *12 =9480units per year

C = Carrying cost per unit per year = $3.5

EOQ = ((2*336*9480)÷3.5)1/2 = (6370560÷3.5)1/2

= (1820160)1/2 = $1349.13

The Firm can save $1349.13 manually in carrying and ordering costs by using EOQ

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