High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are
$100/ton. The cost per order is $500. Calculate the optimal carrying costs.

Question

Quizplus · Accepted Answer

To find the optimal carrying costs, we can use the EOQ (economic order quantity) formula:
EOQ = √((2DS)/H)
where D is the annual demand (400,000 tons), S is the cost per order ($500), and H is the carrying cost per unit per year ($100).

Plugging in the values:
EOQ = √((2*400,000*500)/100) = √(40,000,000) = 6,324.56

Since the EOQ represents the optimal order quantity, we can use it to find the total annual carrying costs:
Total carrying costs = (EOQ/2)*H = (6,324.56/2)*$100 = $316,228

Therefore, the optimal carrying costs are $316,228, which is closest to answer choice B ($100,000).

High-Rise Building Company Uses 400,000 Tons of Stone Per Year