Question:
The question is incomplete. See the complete question and the answer below:
An auto parts shop carries an oil filter for trucks. The annual demand for the oil filter is roughly 1200 units. The ordering cost per order for the auto parts shop is $80; the holding cost of carrying 1 unit is $1.2 per year. The shop has 360 working days per year The lead time is usually 12 working days.
Determine the total carrying cost.
Answer:
Total carrying cost =$240
Explanation:
Given Data;
Annual demand (D) = 1200
Ordering cost (w) = $80
Per unit cost (cn) = $1.2
calculating the economic order quantity (EOQ) using the formula;
EOQ = √[(2Dw)/cn]
Where D = annual demand
w = ordering cost
cn = per unit cost
Substituting into the formula, we have
EOQ = √[(2*1200*80)/1.2]
EOQ = √(192,000/1.2)
= √160000
= 400 units
Number of orders = 1200/400
= 3 orders
Therefore,
Total carrying cost = number of order * ordering cost
= 3 * $80
= $240
