Question

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 78,000 units per year, an ordering cost of $12 per order, and carrying costs of $1.30 per unit.a. What is the economic ordering quantity?b. How many orders will be placed during the year? c. What will the average inventory be? d. What is the total cost of ordering and carrying inventory?

Answer 1

Answer:

Average Inventory =600 units

Ordering Cost = $780

Carrying cost = $780

Total Ordering cost and carrying cost = $1,560

Explanation:

Demand = 78,000 per year

Ordering cost = S = $12 per order

Carrying costs = H = $1.30 per unit

Economic Order Quantity = $\sqrt{\frac{2DS}{H}$

Economic Order Quantity = $\sqrt{\frac{2 X 78,000 X 12}{1.30}$

Economic Order Quantity = 1200

Using EOQ

Average Inventory = EOQ x 50% = 1,200 x 50% = 600 units

Number of Orders = 78,000 / 1,200 = 65 orders

Ordering Cost = 65 x 12 = $780

Carrying cost = 1200 x 1.30/2 = $780

Total Ordering cost and carrying cost = 780 + 780 = $1,560