Sawtooth Industries
Sawtooth Industries uses an economic order quantity (EOQ) model to manage its inventory investment. The company uses about 25,000 molded plastic assemblies each year. Order costs for these are $150 per order, while carrying costs are about $250 per unit per year. Assume a 365 day year.
-What is Sawtooth's total cost at the EOQ?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand rate, $S$ is the order cost, and $H$ is the holding or carrying cost per unit per year. Plugging in the given values: $D = 25,000$, $S = 150$, and $H = 250$, we get EOQ = $\sqrt{\frac{2*25,000*150}{250}} = 500$. The total cost at the EOQ includes the total carrying cost, the total ordering cost, and the purchase cost (which is not part of the EOQ calculation). The total carrying cost is $\frac{EOQ}{2} * H = \frac{500}{2} * 250 = 62,500 / 2 = 31,250$. The total ordering cost is $\frac{D}{EOQ} * S = \frac{25,000}{500} * 150 = 50 * 150 = 7,500$. Therefore, the total cost at the EOQ is the sum of the total carrying cost and the total ordering cost, which is $31,250 + 7,500 = 38,750$. However, since none of the provided options match this calculation, it's possible there was a mistake in the calculation process or a misunderstanding of the question's requirements. Given the options, the closest match or a reevaluation of the calculation is necessary. Without further information or clarification, a precise match to the provided options cannot be determined based on the standard EOQ calculation provided.

Sawtooth Industries Sawtooth Industries Uses an Economic Order Quantity (EOQ) Model to Model