Question
Part A and Part B in the button is solved already. The question is : How does total annual inventory cost under EOQ (see part
Part A and Part B in the button is solved already.
The question is :
How does total annual inventory cost under EOQ (see part B below), compare to current inventory cost (see part a)?
(Part A)
Number of Orders = 600,000/40,000= 15
Total Ordering Cost = Cost per Order * Number of Orders = 50*15= $750
Average Inventory = (40,000 + 0)/2+ 10,000= 30,000 units
Carrying Cost= 30,000*1.20= $36,000
Total Annual Inventory Cost= $750+$36,000= $36,750
(Part B) Calculate total annual inventory cost under EOQ.
Total Inventory Cost =S* + H * Average Inventory = 50* + 1.20 * 1493.03= 1341.64 + 1791.64 = 3,113.28
Total Annual Inventory Cost under EOQ = $3,113.28
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