Cindy's Toys has an average inventory of 1,800 teething rings. The carrying cost per unit per year is 5¢. Cindy places an order for 3,600 teething rings on the first of each month and the order cost is $25. What are the total carrying costs using the EOQ?

Question

Quizplus · Accepted Answer

EOQ formula:
EOQ = √((2DS)/H)

Where,
D = Demand per year = 3600 units per month x 12 months = 43,200 units per year
S = Ordering cost = $25
H = Holding cost per unit per year = $0.05

EOQ = √((2 x 43,200 x 25)/0.05) = 4,320 units

Total annual holding cost = (Average inventory level) x (Holding cost per unit per year)
Average inventory level = EOQ/2 = 2,160 units

Total annual holding cost = 2,160 x 0.05 = $108

Therefore, the total carrying cost using the EOQ is $108 per year.
The best choice is C.

Cindy's Toys Has an Average Inventory of 1,800 Teething Rings