Answer:
a) EOQ = 36 units
b) Average Inventory=18 units
c) No of orders per year= 135 times
d) Ordering cost ($540 ) = Carrying cost ($540)
Step-by-step explanation:
The economic order quantity is the order size that minimizes the the balance of holding cost and ordering cost.
It is calculated using the formula below:
a) EOQ = √ 2×Co×D/Ch
Co- 4, Ch- 30 - D - 4, 860
EOQ = √ 2×4×4,860/30
= 36 units
b) Average Inventory = EOQ /2
= 36/2 = 18 units
c) No of orders per year = Annual demand/ EOQ
=4,860/36 = 135 times
d) At the EOQ, the holding cost = Ordering cost
Holding cost = holding cost per unit × Average inventory
= $30× 18 = $540
Annual ordering cost = ordering cost per unit × No of orders
= $4 × 135 = $540
Ordering cost ($540 ) = Carrying cost ($540)