Answer:
A.16,971 pieces
B.$530.34
C.$530.32
Explanation:
a)
EOQ = √2∗A∗B÷C
EOQ = Economic Order Quantity
A = Annual Demand
B = Buying Cost
C = Carrying Cost per unit per year
Hence:
A = 45,000 pieces
B = $200 per order
C = $1.25 * 5% per unit per year
= $0.0625
EOQ = √2∗45,000∗$200 ÷ $0.0625
= 16,970.56 approximately 16,971 pieces
b)
Annual Holding Cost = Average Inventory * Holding Cost per unit per year
Average Inventory = EOQ÷2
Using the formula
Annual Holding Cost = 16,971 ÷2 ∗$0.0625
Annual Holding Cost =8,485.5×$0.0625
Annual Holding Cost = $530.34
c)
Annual Ordering Cost = Ordering Cost Per order * No. of Orders
No. of Orders = Annual Demand÷EOQ
Annual Ordering Cost = $200∗45,000÷ 16,971
Annual Ordering Cost =$9,000,000÷16,971
Annual Ordering Cost = $530.32
