Question

William​ Beville's computer training​ school, in​ Richmond, stocks workbooks with the following​ characteristics: Demand D 19 comma 900 ​units/year Ordering cost S ​$27​/order Holding cost H ​$3​/unit/year ​a) The EOQ for the workbooks is nothing ​(round your response to the nearest whole​ number). ​b) What are the annual holding costs for the​ workbooks? ​$ nothing ​(round your response to the nearest whole​ number). ​c) What are the annual ordering​ costs? ​$ nothing ​(round your response to the nearest whole​ number).

Answer 1

Answer:

a. 598 units

b. $897

c. $898

Explanation:

a. The computation of the economic order quantity is shown below:

$= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

$= \sqrt{\frac{2\times \text{19,900}\times \text{\ 27}}{\text{\ 3}}}$

= 598 units

b. The average inventory would equal to

= Economic order quantity ÷ 2

= 598 units ÷ 2

= 299 units

Carrying cost = average inventory × carrying cost per unit

= 299 units × $3

= $897

c. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= $19,900 ÷ 598 units

= 33.28 orders

Ordering cost = Number of orders × ordering cost per order

= 33.28 orders × $27

= $898