Given the following:
- Demand = 1050
- Ordering cost = 15
- Holding cost = 55
The economic order quantity is 24.
<h3>What is the economic order Quantity?</h3>
Eoq = √2 * demand * ordering cost / holding cost)
= √(2 * 1050 * 15 / 55)
EOQ = 24
<h3>What is the average number of bags on-hand?</h3>
The Average inventory = EOQ / 2
= 24 / 2
= 12
<h3>How many orders per year will there be?</h3>
Expected number of orders = demand / EOQ
= 1050 / 24
= 44
<h3>What is the total cost of ordering and carrying flour?</h3>
Annual holding cost (AHC) = (EOQ / 2) * Holding cost
= (24 / 2) * 55
= 660
Annual ordering cost (AOC) = (demand / EOQ) * ordering cost
= (1050 / 24) * 15
= 656
Thus,
Total cost of managing = AHC + AOC
= 660 + 656
TCM = 1,316
<h3>If holding costs were to increase by $5 per year, how much would the minimum total annual cost?</h3>
5. For holding cost of 60
EOQ= √(2 * demand * ordering cost / holding cost)
= √(2 * 1050 * 15 / 60)
= 23
Annual holding cost = (EOQ / 2) * holding cost
this gives us
= (23 / 2) * 60
= 690
Annual ordering cost = (demand / EOQ) * ordering cost
= (1050 / 23) * 15
= 685
Total cost of managing = AHC+ AOC
= 690 + 685
= 1375
Change in total annual cost = new - old
= 1375 - 1316
= 59
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