Question

Using the fixed-order quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4.

A) $849
B) $1,200
C) $1,889
D) $2,267
E) $2,400

Answer 1

E) $2,400

Step-by-step explanation:

optimal order quantity = sqrt{(2*D*S)/H}

= sqrt{(2*36,000*$80)/$4}

= $1,200

number of orders per year = $36,000/$1,200

= $30

total ordering cost = $30*$80

= $2,400

Therefore, The total ordering cost of inventory is $2,400.