Comfy Wheels Bus Company produces buses. In order to produce the seats for the buses, special equipment must be set up. The setup cost per frame is $35. The cost of carrying seats in inventory is $6 per seat per year. The company produces 90,000 buses per year.
Total carrying costs (rounded to the nearest dollar) associated with the economic order quantity are
A)$3,075.
B)$3,750.
C)$502.
D)$328.

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) formula is used to minimize the total inventory costs, which include setup and carrying costs. The carrying cost per unit is $6, and the EOQ formula helps determine the optimal order quantity. The total carrying cost is calculated as (EOQ/2) * carrying cost per unit. Solving for EOQ and then calculating the carrying costs gives approximately $3,075.

Comfy Wheels Bus Company Produces Buses