Answer:The answer is 2,719.17 since EOQ is achieved when the total ordering cost and holding cost is at the lowest, Alternative B will be the best alternative
Explanation:
Using the formula EOQ = √2DS/H where D = Demand in unit, S = Ordering cost, H = Holding Cost
Demand = 340 × 148 = 50,320, Ordering cost = Alternative A two day lead time $526, Alternative B two day lead time $532, Alternative A three days lead time $470, Alternative B nine days lead time $411, Alternative A four-day lead time $459, Alternative B seven days lead time $412, Holding Cost = 34% of unit cost = 34/100 × 148 = $50.32
Alternative A
EOQ =√2×50,320 × 526/50.32
√52,936,460/50.32
√1,051,996.42
= 1,025.67
√2×50,320×532/50.32
√53,540,840/53.32
√1,064,000
= 1,031.50
√2×50,320×470/50.32
√47,300,800/50.32
√940,000
=969.54
AlternativeB
√2×50,320×411/50.32
√41,363,040/50.32
√822,000
=906.64
√2×50,320×459/50.32
√46,193,760/50.32
√818,635.93
=904.79
√2×50,320×412/50.32
√41,463,680/50.32
√824,000
=907.74
Total Alternative A = 1,025.67 + 1,031.50 + 969.54
= 3,026.71
Total Alternative B = 906.64 + 904.79 + 097.74
= 2,719.17
Since EOQ is achieved when the total ordering cost and holding cost are at the lowest point. Therefore, shipping alternative B will be the best alternative
