Answer:
annual demand = 1,215 bags of flour
ordering costs = $10 per order
annual carrying costs = $75 per bag
a. Determine the economic order quantity.
EOQ = √[(2 x S x D) / H]
EOQ = √[(2 x $10 x 1,215) / $75] = 18 bags of flour
b. What is the average number of bags on hand?
average number of bags on hand = 18 / 2 = 9
c. How many orders per year will there be?
total number of orders per year = 1,215 / 18 = 67.5 orders
d. Compute the total cost of ordering and carrying flour.
total cost of ordering flour = 67.5 x $10 = $675
since we assume that the company keeps operating after the year ends, we can use fractions when calculating the number of orders per year
total cost of carrying flour = 9 x $75 = $675
total cost of ordering and carrying flour = $1,350
