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zysi [14]
3 years ago
15

A produce distributor uses 773 packing crates a month, which it purchases at a cost of $11 each. The manager has assigned an ann

ual carrying cost of 33 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month. How much could the firm save annually in ordering and carrying costs by using the EOQ?
Business
1 answer:
alekssr [168]3 years ago
6 0

\sqrt\frac{2*773*28}{33}Answer:

Explanation:

Using the EOQ Formula =  EOQ\sqrt\frac{2*D*O}{H}

D = Demand = 773

O = Ordering Cost =28

H = holding Cost = 11*33% =3.63

So we have :

EOQ=\sqrt\frac{2*D*O}{H}

EOQ= \sqrt\frac{2*773*28}{3.63}

EOQ=\sqrt\frac{43288\\}{3.63}

EOQ= \sqrt{11925.06887}

EOQ= 109.20196

   

Previous per unit order cost = 28/773 =0.03622

No of Orders = D/o  

No of Orders = 773/109.20196 =7.0786

Cost per order =109.20196*0.03622 =3.9555

Total order cost= 7.0786*3.9555=27.9998

At EOQ holding Cost is equal to Order Cost

New Order cost =27.9998

Holding Cost = 27.9998

New cost As per EOQ = 56

Previous (33+28)  =  61

Net Saving = 5

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