Question

Duncan foods orders 500 cans of crushed tomatoes every month to be consistent with recommendations made by the EOQ model. If the annual inventory holding cost is​ $0.50 per can per​ year, then what are its annual inventory holding costs in​ dollars? (assume that the assumptions for the EOQ model​ hold) nothing

Answer 1

Answer:

$125

Explanation:

average inventory = 500 / 2 = 250

annual holding costs = 250 x $0.50 = $125

also, if you want to determine the order cost:

EOQ = √[(2 x S x D) / H]

EOQ = 500

H = annual inventory holding cost per unit = $0.50

D = annual demand = 500 x 12 = 6,000

500 = √[(2 x S x 6,000) / 0.50]

500² = 12,000S / 0.50

250,000 x 0.5 = 12,000S

125,000 = 12,000S

S = 125,000 / 12,000 = $10.417 ≈ $10.42

annual ordering costs = $10.42 x 12 = $125.04