Using the fixed-order-quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?
A) $849
B) $1,200
C) $1,889
D) $2,267
E) $2,400

Question

Quizplus · Accepted Answer

The total ordering cost in a fixed-order-quantity model can be calculated using the formula: Total Ordering Cost = (Annual Demand / Order Quantity) * Cost per Order. To find the order quantity (Q), we use the Economic Order Quantity (EOQ) formula: EOQ = sqrt((2 * Annual Demand * Cost per Order) / Holding Cost per Unit per Year). Substituting the given values: EOQ = sqrt((2 * 36,000 * 80) / 4) = 600. Then, Total Ordering Cost = (36,000 / 600) * 80 = $2,400.

Using the Fixed-Order-Quantity Model, Which of the Following Is the Total