Question

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup) costs. Group of answer choices Zero; this is a class C item. $800 $400 $1200 Cannot be determined because the unit price is not known.

Answer 1

Annual inventory cost = $ 800.

Step-by-step explanation:

Demand, D = 4000

Order cost, S = $ 20

Holding cost, H = $ 4

EOQ = sqrt(2 * D * S / H)

= sqrt(2 * 4000 * 20 / 4)

EOQ = 200

Annual inventory cost = Annual setup cost + Annual holding cost

= (D/Q * S) + (Q/2 * H)

= (4000 / 200 * 20) + (200 / 2 * 4) = 400 + 400 = $ 800

Annual inventory cost = $ 800.