Question

Lilibeth works as a purchasing officer in a hardware store. She has determined that the annual demand for number 8 tek screws is 150,000 screws. She estimates that it costs P500 every time an order is placed. This cost includes her salary, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is P2.50. Assume that the demand is constant throughout the year.

a. How many number 8 tek screws should Lilibeth order at a time if she wishes to minimize total inventory cost?

b. How many orders per year should be placed? What would the annual ordering cost be?

c. What would the average inventory be? What would the annual holding cost be?

IN EXCEL plsss>>>>>>>>>>>>>>>>>>

Answer #1

Holding Cost = P2.50 = 2.50 per unit

(a) EOQ = Sqrt ((2 * Annual Demand * Ordering Cost) / (Holding Carrying))

= sqrt ((2 * 150,000 * 500) / (2.50)

= 7,746 units

7,746 number 8 screws should Lila order at a time if she wishes to minimize total inventory cost.

(b) Number of Order = Annual demand / EOQ

= 150,000 / 7,746 = 19.36~20

Total ordering Cost = $500 * 20 = $10000

(c) Average Inventory = 1/2 ( Order Quantity) = 0.5 * 7,746 = 3,873

Holding Cost = 2.50* 3,873= $9682.5

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