Question

C&A purchases cases of chemicals from ABC who charges $ 30 per order and $ 50 per case. Each case has 5 bags of chemicals . C&A needs 2000 bags of chemicals per year. C&A’s annual holding costs are 30%. If C&A uses the Economic Order Quantity when placing orders. What is the annual ordering and holding cost per case of chemicals ? I got $1.5 and my friend got $1341.66

Answer 1

Solution :-

Annual Sales ( A ) = 2000 Bags = 400 Case

Ordering Cost ( O ) = $30

Holding Cost ( C ) = $50 * 30% = $15

EOQ = ( 2AO/C )^1/2

EOQ = * ( 2 * 400 * $30 / $15 )^1/2

EOQ = ( 1,600 )^1/2

EOQ = 40 Cases

Total Ordering Cost = ( $30 * 400 / 40 ) = $300

Total Carrying Cost = ( $15 * $400 / 2 ) = $3,000

Total Holding and Carrying Cost in a year = $300 + $3,000 = $3,300

The annual ordering and holding cost per case of chemicals = $3,300 / 400 = $8.25 per case

If there is any doubt please ask in comments .......

Thank you please rate .....

Note :- Your Both answer are incorrect as you solve with out converting number of bags into case As all figures are given as per case