We need 3,000 units per year at a unit price of $25 and at a cost of $75 per order, with a carrying cost of 20%.
-What is the total annual inventory cost?

Question

Quizplus · Accepted Answer

The total annual inventory cost includes the ordering cost and the carrying cost. The Economic Order Quantity (EOQ) can be calculated using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Carrying Cost). Here, Demand = 3000 units, Order Cost = $75, and Carrying Cost = 20% of $25 = $5. EOQ = sqrt((2 * 3000 * 75) / 5) = 100 units. The number of orders per year = Demand / EOQ = 3000 / 100 = 30. Ordering cost = Number of orders * Order cost = 30 * 75 = $2250. Average inventory = EOQ / 2 = 100 / 2 = 50 units. Carrying cost = Average inventory * Carrying cost per unit = 50 * 5 = $250. Total annual inventory cost = Ordering cost + Carrying cost = $2250 + $250 = $1500.

We Need 3,000 Units Per Year at a Unit Price