a traffic control system firm has historically ordered 50 control board at the t
ID: 376838 • Letter: A
Question
a traffic control system firm has historically ordered 50 control board at the time because boards are large and take up value space in the company’s limited climate controlled store area. The company has decided to expand and build a new climate controlled warehouse. In the warehouse will be a locked cage are dedicated to control board storage. You have been asked to determine minimum space that will be needed for the caged area for control boards if the company follows EOQ when determining many to order. The control boards take up 1 square feet each. The firm has a demand of 4000 units per year and a board cost per unit of $120. Ordering cost is $50 per order, and holding charge is $2 a unit month. How large will the cage need to be (min) to accommodate the anticipated maximum inventory?
447 ft
223
129
65
31
Explanation / Answer
Correct Answer:
129
Working note:
As per the given data,
EOQ will be the maximum inventory that has to be kept.
EOQ = (2*annual demand*ordering cost/holding cost per unit per year)^.5
Holding cost per unit per month = $2
Then,
Holding cost per unit per year = 12*2 = 24
EOQ = (2*4000*50/24)^.5 = 129.09 or 129 units
Since, space required is 1 square feet per unit, then 129 square feet is the cage area required to accommodate the maximum inventory.
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