Q-Beck Company uses 50,000 circuit boards each year in its production of stereo units. The cost of placing an order is $50. The cost of holding one unit of inventory for one year is $5. Currently, Q-Beck orders 2,500 circuit boards in each order.
Required:
1. Compute the annual ordering cost.
2. Compute the annual carrying cost.
3. Compute the cost of Q-Beck's current inventory policy.
4. Compute the economic order quantity.
5. Compute the ordering cost and the carrying cost for the EOQ.
6. How much money does using the EOQ policy save the company over the policy of purchasing 2,500 circuit boards per order?
7. Conceptual Connection: Suppose that the supplier charges an extra $0.05 per unit to purchase circuit boards in orders of 1,500 or less. Should Q-Beck switch to the EOQ policy or not?