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Determine the ordering, holding, and total inventory costs for the current order quantity.
The ordering cost=D/Q XC_O
=1200/100x20=240
The total holding cost=Average stock x holding cost per unit per annum
=Q/2XCh
=100/2x8.4=420
Therefore the Total inventory cost will be=Total ordering cost + Total ordering cost
=240+420=660
b. Determine the economic order quantity (EOQ).
Annual demand =1200
C =28
Ch. =30% of 28=8.4
Co=20
Q=100
EOQ=v((2DC_O)/Ch)
=v(2x1200x20/8.4)
=75.59
=76 units
c. How many orders will be placed per year using the EOQ?
No of orders =(Annual demand(D))/(quantity (Q))
=1200/76
=15.79 approximately 16 orders per year
d. Determine the ordering, holding, and total inventory costs for the EOQ. How has ordering cost changed? Holding cost? Total inventory cost?
The total ordering cost=Number of orders x cost per order
= D/QXCo
I.e. Total ordering cost=1200/76x20
=315.8
Total holding cost= Q/2x Ch.
=76/2 x8.4
=319.2
Total inventory cost= Total ordering cost + Total holding cost
= 1200/76x20 + 76/2x 8.4
=635
Conclusion the ordering and holding cost and total cost of inventory have reduced due to the decrease in the order quantity
Twanjiru answered the question on March 8, 2021 at 07:52
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