Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
-Use the information in Scenario 9.2.What are the total annual holding and ordering costs if Burdell orders using the EOQ quantity?

Question

Quizplus · Accepted Answer

To find the EOQ quantity, we can use the formula:
EOQ = sqrt((2DS)/H)
Where,
D = annual demand = 300
S = cost to place an order = $40
H = holding cost per unit per year = $60

Plugging in the values, we get:
EOQ = sqrt((2*300*40)/60)
EOQ = 49.14

Since we cannot order a fraction of an assembly, we will round up to the nearest whole number and order 50 units at a time.

To find the total annual ordering cost, we can use the formula:
Total annual ordering cost = (D/EOQ)*S
Total annual ordering cost = (300/50)*$40
Total annual ordering cost = $240

To find the total annual holding cost, we can use the formula:
Total annual holding cost = (EOQ/2)*H
Total annual holding cost = (50/2)*$60
Total annual holding cost = $1,500

Adding the total annual ordering and holding costs, we get:
Total annual cost = $240 + $1,500
Total annual cost = $1,740

Therefore, the total annual holding and ordering costs with the EOQ quantity is greater than $1,000 but less than or equal to $1,500, hence the answer is B.

Scenario 9.2 The Burdell Company Is a Small Manufacturing Company That Uses