Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
-Use the information in Scenario 9.1.What are the annual inventory holding costs if Talbot orders using the EOQ quantity?

Question

Quizplus · Accepted Answer

First, we need to calculate the Economic Order Quantity (EOQ) using the formula:
EOQ = √[(2DS/H)]
where D = annual demand, S = cost to place an order, H = holding cost per unit per year.

Plugging in the values from the scenario:
EOQ = √[(2*8000*50)/20]
EOQ = √[80000]
EOQ = 282.84 (rounded up to 283)

The annual holding cost can then be calculated using the formula:
Annual Holding Cost = (Q/2) * H
where Q = order quantity, H = holding cost per unit per year.

Plugging in the values from the scenario and using the EOQ as the order quantity:
Annual Holding Cost = (283/2) * 20
Annual Holding Cost = $2,830

Therefore, the annual inventory holding costs if Talbot orders using the EOQ quantity is greater than $1,500 but less than or equal to $4,000.

Scenario 9.1 The Talbot Company Uses Electrical Assemblies to Produce an Array