A firm presents a market value balance sheet and a book value balance sheet to prospective investors. What is wrong with using t
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Answer:
Minimun cost: $2000
Explanation:
We solve for the optimal order size using the
Economic Order Quantity:
<u>Where: </u>
D = annual demand = 2,000 boxes
S= setup cost = ordering cost = $ 100
H= Holding Cost = $10.00
EOQ 200
It should order: 2,000 demand / 200 order size = 10 times
At a cost of 1,000 dollar (100 units x $ 10)
It will face an average inventory of 100 units thus holding cost:
100 units x 10 dollar per unit = 1,000
Total cost: 1,000 + 1,000 = 2,000