Nazca Company uses 48,000 grams of silver each year to produce jewelry. The cost of placing an order is £150. The annual cost of holding one gram of silver is £3. Nazca currently places 12 orders of 4,000 grams each.
Required:
a.
Compute the annual cost of the current inventory policy.
b.
Compute the cost that Nazca would incur if it used economic order quantity.
c.
Compute the amount that Nazca would save if it used economic order quantity rather than the current policy.

Question

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The Answer of Nazca Company uses 48,000 grams of silver each year to produce jewelry. The cost of placing an order is £150. The annual cost of holding one gram of silver is £3. Nazca currently places 12 orders of 4,000 grams each.
Required:
a.
Compute the annual cost of the current inventory policy.
b.
Compute the cost that Nazca would incur if it used economic order quantity.
c.
Compute the amount that Nazca would save if it used economic order quantity rather than the current policy.

Nazca Company Uses 48,000 Grams of Silver Each Year to Produce