Scenario 9.3
The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year.
-Use the information in Scenario 9.3. What is the annual inventory holding cost if Talbot orders using the EOQ quantity?
A) less than or equal to $1,500
B) greater than $1,500 but less than or equal to $4,000
C) greater than $4,000 but less than or equal to $6,500
D) greater than $6,500

Question

Quizplus · Accepted Answer

To calculate the annual inventory holding cost, we need to find the EOQ (economic order quantity) first. 
EOQ = √(2DS/H)
where D = annual demand, S = cost to place an order, and H = holding cost per unit per year. 
Plugging in the values, EOQ = √(2*8000*50/20) = 400 units. 
Now, we can find the number of orders placed in a year, which is D/EOQ = 8000/400 = 20 orders. 
The annual holding cost would be (EOQ/2) x H = (400/2) x 20 = $4,000. 
Therefore, the correct answer is B) greater than $1,500 but less than or equal to $4,000.

Scenario 9.3 The Talbot Company Uses Electrical Assemblies to Produce an Array