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 ordering costs if Talbot orders using the EOQ quantity?

Question

Quizplus · Accepted Answer

The EOQ (Economic Order Quantity) formula is used to minimize the total cost of ordering and holding inventory. The EOQ is calculated as √((2DS)/H), where D is the demand (8,000 units), S is the ordering cost ($50), and H is the holding cost ($20). The EOQ is √((2*8000*50)/20) = 200 units. The number of orders per year is 8,000/200 = 40. Therefore, the annual ordering cost is 40 orders * $50 per order = $2,000, which falls in the range greater than $1,000 but less than or equal to $2,500.

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