Scenario 9.4
The Mwongola Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year.
-Use the information in Scenario 9.4. What is the annual inventory holding cost if Mwongloa orders using the EOQ quantity?
A) less than or equal to $300
B) greater than $300 but less than or equal to $500
C) greater than $500 but less than or equal to $700
D) greater than $700

Question

Quizplus · Accepted Answer

To calculate the annual inventory holding cost, we need to use the EOQ formula as follows:

EOQ = √[(2DS)/H]

where D = annual demand (300 units), S = ordering cost ($40), and H = holding cost per year per item ($60).

Plugging in the values, we get:

EOQ = √[(2x300x40)/60] = √(2400) = 48.99 or 49 units (rounded up)

Therefore, Mwongola should order 49 units at a time to minimize the total inventory cost. The annual inventory holding cost for this quantity can be calculated as:

H = (Q/2) x H = (49/2) x 60 = $1,470

Therefore, the annual inventory holding cost is greater than $500 but less than or equal to $700, which means the correct answer is choice C.

Scenario 9.4 The Mwongola Company Is a Small Manufacturing Company That Uses