Question

A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are used at a steady rate during the 240 days a year that the plant operates. Annual holding cost is $ 12 per silicon chip. The optimal ordering quantity is 4066 chips per order. What is the assumed ordering cost, i.e. S?

Answer 1

$24,396

Step-by-step explanation:

Economic order quantity (or EOQ) is the optimal order quantity for a company where the total inventory costs turns out to be minimum. It is the number of units to be ordered per order to minimize the ordering and holding costs.

Answer and Explanation:

The correct choice is Option A - $2,400.00

Average Inventory = 4,066 /2 = 2,033

Total Holding cost = $12 x 2,033

Total Holding cost = $24,396

As at optimal ordering quantity level the holding cost and ordering cost is equal. So the ordering cost is $24,396.