Question

Restaurant A uses 60 bags of tomatoes each month. The tomatoes are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Restaurant A’s annual inventory holding cost percentage is 40%. If Restaurant A chooses to use the economic order quantity when placing an order for tomatoes, what are its ordering and holding costs per year expressed as a percentage of the annual purchasing cost?

Answer 1

Answer:

Explanation:

D = 60 bags

cost = 80 / bag

s = 20 / order

h = 40% of cost

     0.4 * 80 / 100

h= 32 unit/year

D =  d * 12 months

D = 60 * 12

D = 720 bags / year

EOQ = $\sqrt{2DS/H}$

EOQ = $\sqrt{2 *720*20/32}$

EOQ = 30 bags

Total cost =  Total holding cost + total ordering cost

Total holding cost  = (Q/2 * H) = (30/2 * 32) = 480

Total ordering cost =  (D/Q * 20) = (720/30 *20) = 480

Total cost = 480 + 480 = 960

Total purchasing cost  = cost * D = 80 * 720 = 57.600

Percentage= total cost  / total purchasing cost  * 100

960 / 57.600 * 100

1.67 %