Question

Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540 and Haulsee’s inventory carrying costs average 14% of the inventory value. What is the total inventory costs? a. $565,443 b. $224,331 c. $211,555d. $211,555,120

Answer 1

Answer:

Correct answer is c. $211,555.

Explanation:

Here inventory cost means total ordering cost plus total carrying cost for they year. This can be determine by using simple EOQ (economic order quantity) formula given below.

EOQ =((2* Annaul Requirement * cost per order)/carrying cost per unit)^ (1/2)

EOQ = ((2*800,000*540)/(370*14%))^(1/2)

EOQ = 4,084 units

so

Total order cost = 800.000/4,084 * 540 = 196 (aprox) *540 = 105,840 -A

Total Carrying cost = 4,084/2 * (370*14%) = 105,776-B

Total Cost = A+B = $ 211,555 (aprox)