Question

Abey Kuruvilla, of Parkside Plumbing, uses 1,200 of a certain spare part that costs $25 for each order, with an annual holding cost of $24.A) Calculate the total cost for order sizes of 25, 40, 50, 60, and 100.B) Identify the economic order quanitity and consider the implications for making an error in calculating economic order quanitity.

Answer 1

Answer:

total inventory cost = $1500

total inventory cost = $1230

total inventory cost = $1200

total inventory cost = $1220

total inventory cost = $1500

economic order quantity = 50

Explanation:

given data

uses spare part =  1,200

cost = $25

annual holding cost = $24

to find out

Calculate the total cost for order sizes of 25, 40, 50, 60, and 100 and economic order quantity

solution

we get here total cost of order size as

total inventory cost = C × 0.5Q + F × $\frac{D}{Q}$

here C is cost per unit and Q is order quantity and F is fixed cost and D is demand per year

so now we put first for 25 size

total inventory cost = C × 0.5Q + F × $\frac{D}{Q}$

total inventory cost = 24 × 0.5× 25 + 25 × $\frac{1200}{25}$

total inventory cost = $1500

and

now for order 40

total inventory cost = 24 × 0.5× 40 + 25 × $\frac{1200}{40}$

total inventory cost = $1230

and

now for order 50

total inventory cost = 24 × 0.5× 50 + 25 × $\frac{1200}{50}$

total inventory cost = $1200

and

now for order 60

total inventory cost = 24 × 0.5× 60 + 25 × $\frac{1200}{60}$

total inventory cost = $1220

and

now order size 100

total inventory cost = 24 × 0.5× 100 + 25 × $\frac{1200}{100}$

total inventory cost = $1500

and

now we find economic order quantity that is

economic order quantity = $\sqrt{\frac{2CR}{H}}$

economic order quantity = $\sqrt{\frac{2*25*1200R}{24}}$

economic order quantity = 50