Question

1. Given that unit item cost = $100, annual carrying charge = 30%, annual demand = 3600 units and ordering cost = $15 per order, the EOQ is:

A. 3600

B. 400

C. 60

D. 42.43

E. None of the above

2. Given that unit item cost = $100, annual carrying charge = 30%, annual demand = 3600 units and ordering cost = $15 per order. If a lot size of 100 units is used to order (i.e., Q = 100), the total annual cost is:

A. $2040
B. $1800
C. $1500
D. $900
E. None of the above

Answer 1

Solution :

Part 1 : Option C : 60

Given that unit item cost = $100, annual carrying charge = 30%, annual demand = 3600 units and ordering cost = $15 per order, the EOQ is

EOQ = Square Root ( 2 * Demand * Ordering Cost / Holding Cost ) = Square Root ( 2*3600*15/0.3/100)

EOQ = 60 units

Part 2 : Option : A : 2040

Given that unit item cost = $100, annual carrying charge = 30%, annual demand = 3600 units and ordering cost = $15 per order. If a lot size of 100 units is used to order (i.e., Q = 100), the total annual cost is:

Total Cost = Annual Ordering Cost + Annual Holding Cost

TC = 3600/100*15 + 0.3*100*100/2

TC = 2040