albemarle sprinkler company purchases the sprinkler heads for its line of lawn s

Question

albemarle sprinkler company purchases the sprinkler heads for its line of lawn sprinklers from a supplier. albemarle’s production manager wonders how many sprinkler heads she should order for the next six months . what is albemarle’a inventory cost using the Eoq point ? Albemarle Sprinkler Company purchases the sprinkler heads for its line of lawn sprinklers from a supplier. Albemarle's production manager wonders how many sprinkler heads she should order for the next six months. The company's marketing manager forecasts sales to be 29,400 units for the upcoming six months. The purchasing manager has negotiated a price of $6.47 per head. The production manager estimates that it costs $17.25 to place an order with the supplier and $2.97 to store a sprinkler head in inventory for six months. What is Albemarle's total inventory cost using the EOQ point? o a. $191,954 o b. $192,388 C. $192,166 d. $192.087 ?

Explanation / Answer

Holding costs = 2.97*29400 = 87318

Cost of placing the order = $17.25

Price = $6.47 per head

= 6.47*29400 = 190218

EOQ = SQRT (2*29400*{17.25/2.97}) = 584.39

The firm needs to place 50 orders

Average inventory held = 584/2 = 292

Carrying cost = 292*2.97=867.24

Total inventory cost = Carrying Cost + Holding Cost

= 190218 + 17.25*50 + (292*2.97) = 191947.74

a) 191954

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