Question

Net Steels is a steel manufacturing company. It orders 180 metric tons of raw material per order. It was observed that the company often faces stockout. To tackle this issue, the company incorporated a fixed-quantity system (FQS) and collected the following data. Demand 11,000 metric tons per year Order Cost $18,000 per order Item Cost $36,000 per metric ton Inventory-Holding Cost 20 percent per year Using the data, Net Steels determined that the economic order quantity (EOQ) should be 235 metric tons. In this scenario, the annual amount that Net Steels can save by ordering as per the EOQ instead of its conventional order is: a. less than $45,000. b. more than $45,000 but less than or equal to $55,000. c. more than $55,000 but less than or equal to $65,000. d. more than $65,000.

Answer 1

Answer:

The answer is  c more than  $55,000 but less than or equal to $65,000

Explanation:

EOQ = √2DS/H

Demand = 11,000 × 36,000 = 396,000,000

Order Cost = 1$8,000

Holding Cost = 20/100 × 18,000

= 3,600

EOQ = √ 2 × 18,000 × 396,000,000/3,600

EOQ = √ 14,256,000,000,000/3,600

EOQ =√ 3,960,000,000

EOQ = $62,928.53

The answer is more than $55,000 but less than equal to $65,000