The annual requirement (R) of a part is 360,000 units. The order cost (S) is $12
ID: 420368 • Letter: T
Question
The annual requirement (R) of a part is 360,000 units. The order cost (S) is $120 per order, the holding rate (k) is 12 percent, and the part cost (c) is $2,500 per unit.
a. The economic order quantity is ______. (Round your answer to the nearest whole unit.)
b. The annual holding cost is $ ______. (Note: When calculating EOQ, round to the nearest whole number and round your final answer to the nearest dollar.)
c. The annual ordering cost is $ _______. (Round your answer to the nearest dollar.)
d. The annual total inventory cost is $ _______. (Round your answer to the nearest dollar.)
Explanation / Answer
In the question:-
Demand = 360,000
Ordering cost = $120
Holding cost=0.12* $2,500=$300
EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)
EOQ = SQRT (( 2* 36000 * 120 )/300) = 169.70 ~ 170 Units
Annual holding costs = (Quantity of items) * (Holding Cost) / 2
= 170 * 300/2 = $25500
Annual ordering costs = (Demand * Order Cost)/ Q
Annual ordering costs for the workbooks = (360000 * 120) / 170 = $ 254117.6
Total Annual cost= Annual ordering cost + Annual holding cost
Total Annual cost=25500+254117.6=$279617.6
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