Question

A product has an annual demand of 18,930 units. The unit price is $60 each and the ordering cost is $93. The store uses a yearly inventory holding cost of 34% of the unit price. They have decided to order 38 units every time they order, instead of the EOQ amount. What is the total annual cost of purchasing 38 units per order (purchasing, ordering, and holding)

Answer 1

The total annual cost of purchasing 38 units per order (purchasing, ordering and holding) is:

= $1,568,301.

Step-by-step explanation:

a) Data and Calculations:

Annual demand = 18,930 units

Unit price = $60

Total purchasing cost = $1,135,800 ($60 * 18,930)

Ordering cost is $93 per order

Total ordering cost = $46,329 ($93 * (18,930/38))

Annual Holding cost = 34% of the unit price = $20.40 ($60 * 34%)

Total holding cost = $386,172 ($20.40 * 18,930)

The total annual cost:

Total purchasing cost = $1,135,800

Total ordering cost = $46,329

Total holding cost = $386,172

Total annual cost = $1,568,301