Answer:
Check the explanation
Explanation:
The Economic Order Quantity EOQ= SQRT(2*D*Co/Ch),
Where Square root, SQRT, D is the annual demand , Co Cost of order and Ch is the cost of holding
Here annual Demand D =20500
Cost of order Co = 50 $
Cost of holding Ch= 20% of Cost of purchasing = 20%*$14 = $2.8
EOQ = SQRT(2*20500*50/2.8) = SQRT(732142.85) = 855 Units
Minimum TAC can be calculated in two ways
1) With Formula , Minimum TAC = SQRT(2*D*Co*Ch) = $2395.83
2) Without Formula , I.e Cost of Oreder+ Cost of Holding
=(20500/855)*$50 + (855/2)*$2.8 = 2395.83
Where 20500/855 is the number of orders, and 855/2 is the average stock
B) If 500 units purchased at a time
Then Number of orders = 20500/500 = 41 orders in year
Total cost ordering = 41*$50 = $2050
Inventory holding cost = Average inventory * holding cost =
= 500/2*$2.8 = 700
the Total/overall annual cost inventory = $2050+$700 = $2750
