Question

Our home construction company still buys nails in 15-pound boxes but now we use an average of 2505 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $2.40 per order. Annual carrying costs are $0.2 per bag.

What will be their total cost of ordering and carrying the nails? (Include the pennies in your answer)

Answer 1

Annual demand				2505
Ordering cost per order				2.4
Carrying cost per unit				0.2
EOQ = (2*Annual demand * Ordering cost per order / Carrying cost per unit )^2
	( 2 * 2505 *0.20 /2.40 )^2 = 245.20 units or 245 units
Number of orders = Annual Demand / EOQ = 2505/ 245 = 10.22 orders
Total Ordering cost = Number of orders* Ordering cost per order
		10.22 orders *2.40 = $24.53
Total Carrying cost = Average Inventory * Carrying cost per unit
		EOQ /2 * Carrying cost per unit = 245 /2 * 0.2 = $ 24.50
Total ordering and carrying cost = 24.53+24.50 = $ 49.03
Answer is $ 49.03