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 total annual holding and ordering costs if Mwongola orders using the EOQ quantity?
A) greater than $1,500
B) greater than $1,000 but less than or equal to $1,500
C) greater than $750 but less than or equal to $1,000
D) less than or equal to $750

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) can be calculated as follows:
EOQ = sqrt((2DS)/H)
Where, 
D = annual demand = 300 units
S = cost to place an order = $40
H = holding cost per unit per year = $60
Plugging in the values, we get:
EOQ = sqrt((2*300*40)/60)
EOQ = 70.71
Therefore, Mwongola should order 70.71 units each time to minimize the total holding and ordering costs.
The total annual holding and ordering costs can be calculated as follows:
Total cost = (D/EOQ)*S + (EOQ/2)*H
Total cost = (300/70.71)*40 + (70.71/2)*60
Total cost = $855.25
Therefore, the total annual holding and ordering costs if Mwongola orders using the EOQ quantity is greater than $1,000 but less than or equal to $1,500.

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