Question

a company decides to establish an EOQ for an item. The annual demand is 200,000 units. The ordering costs are $40 per order, and inventory-carrying costs are $2 per unit per year. Calculate the following: A. The EOQ in units. B. Number of orders per year. C. Annual ordering cost, annual holding cost, and annual total cost.

Answer 1

Answer:-

A)EOQ in units = 2829 Units (rounded up)

B)Number of orders per year= 71

C)Annual ordering cost,= 2840

Annual Holding Cost = 2829

Annual Total Cost = 5669

Explanation:-

(A)

EOQ in units = (2AO/i)^(1/2)

EOQ in units = (2*200000*40/2)^(1/2)

EOQ in units = 2828.43 Units

EOQ in units = 2829 Units (rounded up)

(B)

Number of orders per year= Annual Demand/EOQ

Number of orders per year= 200000/2829

Number of orders per year= 70.69

Number of orders per year= 71 (rounded)

(C)

Annual ordering cost= Number of Order*Order cost

Annual ordering cost= 71*40

Annual ordering cost= 2840

Annual Holding Cost = Average Inventory * Carrying cost per unit

Annual Holding Cost = 2829/2 * 2

Annual Holding Cost = 2829

Annual Total Cost = Annual ordering cost+ Annual Holding Cost

Annual Total Cost = 2840+2829

Annual Total Cost = 5669