Question

A produce distributor uses 800 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month.

Answer 1

Answer:

$364.29

Explanation:

given,

Packing of crates per month (u)= 800

annual carrying cost of 35 percent of the purchase price per crate.

Ordering cost(S) = $ 28

D = 800 x 12 = 9600 crates/year

H = 0.35 P

H = 0.35 x $10

H = $3.50/crate per yr.

Present Total cost

= $\dfrac{800}{2}\times 3.50 + \dfrac{9600}{800}\times 28$

= 1400 + 336

= $ 1,736

$Q_0 = \sqrt{\dfrac{2DS}{H}}$

$Q_0 = \sqrt{\dfrac{2\times 9600 \times 28}{3.50}}$

$Q_0 =\ 391.92$

Total cost at EOQ

= $\dfrac{391.92}{2}\times 3.50 + \dfrac{9600}{391.92}\times 28$

= 685.86 + 685.85

= $ 1,371.71

the firm save annually in ordering and carrying costs by using the EOQ

    = $ 1,736 - $ 1,371.71

    = $364.29