Diagnostic Supplies has expected sales of 98,000 units per year, carrying costs
ID: 2817012 • Letter: D
Question
Diagnostic Supplies has expected sales of 98,000 units per year, carrying costs of $5 per unit, and an ordering cost of $8 per order a. What is the economic ordering quantity? Economic ordering quantity b-1. What is the average inventory? Average inventory units b-2. What is the total carrying cost? Total carrying cost Assume an additional 70 units of inventory will be required as safety stock -1. What will the new average inventory be? Average inventory c-2. What will the new total carrying cost be? Total carrving costExplanation / Answer
EOQ = square root of (2*annual demand*ordering cost per order) / (holding cost per square foot)
Square root of (2*98000*8)/ (5)
560
average inventory
quantity ordered/2
560/2
280
total carrying cost
average inventory*carrying cost per unit
280*5
1400
average inventory with safety stock
(quantity ordered/2)+safety stock
(560/2)+70
350
total carrying cost
(quantity ordered/2)+safety stock
350*5
1750
EOQ = square root of (2*annual demand*ordering cost per order) / (holding cost per square foot)
Square root of (2*98000*8)/ (5)
560
average inventory
quantity ordered/2
560/2
280
total carrying cost
average inventory*carrying cost per unit
280*5
1400
average inventory with safety stock
(quantity ordered/2)+safety stock
(560/2)+70
350
total carrying cost
(quantity ordered/2)+safety stock
350*5
1750