Answer:
$1,042
Explanation:
Calculation for How much is your boss implying that she is willing to spend on the WBOsystem on an annual basis
In order for us to know How much the boss implying that she is willing to spend on annual basis we have to calculate (EOQ) which full meaning is Economic order quantity Before and After change
BEFORE CHANGE
First step is to calculate Q
Using this formula
O=√2*D*S/H
Where,
D represent Annual Quantity Demanded
S represent Ordering Cost
H represent Holding Cost
Let plug in the formula
Q=√2*(1,000units* 12 months)*$15*$5
Q=√(2 * 12,000 * $15 / $5)
Q= 268
Second step is to calculate the Annual Order Cost
Annual Order Cost = 12,000/268 * $15
Annual Order Cost =44.78*$15
Annual Order Cost =$672
Third step is to calculate the Annual Holding Cost
Annual Holding Cost = 268/2 * $5
Annual Holding Cost =$670
Fourth Step is to calculate Total Cost
Total Cost = $672 + $670
Total Cost= $1,342
Calculation for the Economic order quantity (EOQ) After change
AFTER CHANGE
First step is to calculate Q
Using this formula
Q=√2*D*S/H
Where,
D represent Annual Quantity Demanded
S represent Ordering Cost
H represent Holding Cost
Let plug in the formula
Q=√2*(1,000units* 12 months)*$0.75*$5
Q=√(2 * 12,000 * $0.75 / $5)
Q=60
Second step is to calculate Annual Order Cost
Annual Order Cost = 12,000/60 * $0.75
Annual Order Cost=$150
Third step is to calculate Annual Holding Cost
Annual Holding Cost = 60/2 * $5
Annual Holding Cost =$150
Fourth Step is to calculate Total Cost
Total Cost = $150 + $150
Total Cost = $300
Now let calculate How much is your boss is willing to spend on the WBOsystem on an annual basis using this formula
Amount to spend on WBOsystem =Total Cost before change-Total Cost after change
Let plug in the formula
Amount to spend on WBOsystem=$1,342-$300
Amount to spend on WBOsystem=$1,042 on annual basis
Therefore the amount your boss implying that she is willing to spend on the WBOsystem on an annual basis is $1,042
