Ace Hardware's economic order quantity (EOQ) is 100 widgets, its total demand is 20,000 units per period, its carrying cost per unit is 20% of inventory value, its purchase price $4, and its fixed costs per order is $20. Which of the following is the total inventory cost of Ace?

Question

Quizplus · Accepted Answer

The total inventory cost includes the sum of the ordering cost and the carrying cost. The ordering cost is calculated as (Total Demand / EOQ) * Fixed Cost per Order = (20,000 / 100) * $20 = $4,000. The carrying cost is calculated as (EOQ / 2) * Carrying Cost per Unit = (100 / 2) * (20% of $4) = $40. Therefore, the total inventory cost is $4,000 + $40 = $4,040.

Ace Hardware's Economic Order Quantity (EOQ) Is 100 Widgets, Its