Answer:
a. $4,800
b. $ 30,000
c. $34,800. No this is not the minimum. Both the ordering and holding costs are high.
d. 1,600 plastic housing units
e. ordering = $12,000 , carrying = $12,000 , and total costs = $24,000
f. $10,000
Explanation:
At Current level,
annual ordering cost = $30 × 160 orders
= $4,800
annual carrying cost = (4,000 / 2) × $15.00
= $ 30,000
Total Cost = $ 30,000 + $4,800
= $34,800
Economic order quantity is the optimum order size that will result in the total of ordering and holding costs being minimized.
Economic order quantity = √(2 × Annual Demand × Ordering Cost per order) / Holding Cost per unit
= √(2 × 640,000 × $30) / $15.00
= 1,600
At the EOQ,
annual ordering cost = $30 × 640,00/1600 orders
= $12,000
annual carrying cost = (1,600 / 2) × $15.00
= $ 12,000
Total Cost = $ 12,000 + $ 12,000
= $24,800
Savings,
Saving = $34,800 - $24,800
= $10,000
