Question

A firm that stocks lightbulbs gathers the following information: Demand = 19,500 units per year, Ordering cost = $25 per order, Holding cost = $4 per unit per year. The firm wants to calculate the: a) EOQ for the lightbulbs. b) Annual holding costs for the lightbulbs. c) Annual ordering costs for the lightbulbs.

Answer 1

Answer:

Step-by-step explanation:

Demand = 19,500 units per year (D)

Ordering cost = $25 per order (O)

Holding cost = $4 per unit per year (C)

a) $EOQ=\sqrt{ \frac{2\times D\times O}{C}}$

   $EOQ=\sqrt{ \frac{2\times 19,500\times 25}{4}}$

   = $\sqrt{\frac{975000}{4}}$

   = $\sqrt{243,750}$

   = 493.71044 ≈ 494

b) Annual holding cost = $4\times(\frac{Q}{2})$

                                      = $4\times(\frac{494}{2})$

                                      = 4 × 247

                                      = 988

c) Annual ordering cost = $O\times(\frac{D}{Q} )$

                                       = $25\times(\frac{19,500}{494} )$

                                       = 25 × 39.47

                                       = 986.75

AOQ = 494

Annual holding cost = 988

Annual ordering cost = 986.75