Question

You are the operations manager of a firm that uses the continuous-review inventory control system. Suppose the firm operates 52 weeks a year, 365 days, and has the following characteristics for its primary item:Demand = 450 units/per weekOrdering cost = $35/orderEOQ = 468 units What is the unit holding cost per year?A. Not greater than $3B. Greater than $3 but not greater than $6C. Greater than $6 but not greater than $9

Answer 1

Answer:

C. Greater than $6 but not greater than $9

Explanation:

The computation of the  unit holding cost per year is shown below:

As we know that

$Economic\ order\ quantity = \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

where,

Annual demand is 450 × 52 weeks = 23,400 units

Ordering cost is $35 per order

Economic order quantity is 468 units

Now placing these values to the above formula

$468\ units = \sqrt{\frac{2\times \text{23,400}\times \text{\ 35}}{\text{Carrying\ cost}}}$

Now to find out the carrying cost, the calculation is given below:

= (2 × 450 units × $35) ÷ 468^2

= $7.48 per unit

The carrying cost is also known as holding cost