Question

ABC Ltd. uses EOQ logic to determine the order quantity for its various components and is planning its orders. The Annual consumption is 80,000 units, Cost to place one order is $1,200, Cost per unit is $50, carrying cost is 6% of Unit cost, and EOQ is 8000 units. Find Total Cost of Inventory (Hint: total cost of inventory = Ordering Cost + Carrying Cost). (enter numerical value)

Answer 1

The Total Cost of Inventory is $4,024,000

Step-by-step explanation:

The computation of the total cost is shown below:

= Purchase cost + ordering cost + carrying cost

where,

Purchase cost = Annual consumption × Cost per unit\

= 80,000 × $50

= $4,000,000

Ordering cost = (Annual demand ÷ EOQ) × Cost to place one order

= (80,000 ÷ 8,000) × $1,200

= $12,000

Carrying cost = (EOQ ÷ 2) × carrying cost percentage × Cost per unit

= (8,000 ÷ 2) × 6% × $50

= $12,000

Now put these values to the above formula

So, the value would equal to

= $4,000,000 + $12,000 + $12,000

= $4,024,000