Question

A wholesale store buys 500 of their most popular coffee mugs each month. The cost of ordering and receiving shipments is $12 per order. Accounting estimates annual carrying costs are $3.60. The supplier lead time is 2 operating days. The store operates 240 days per year. Each order is received from the supplier in a single delivery. There are no quantity discounts. Use 2 decimal places in your calculations (if needed) and then round your final answer to the closest whole number.

Answer 1

Economic Order Point: 200 units

Order per year 30

Ordering cost $360

Holding cost $360

Step-by-step explanation:

`Q_(opt) = \sqrt{(2DS)/(H)}`

Where:

D = annual demand = 6,000

S= setup cost = ordering cost = 12

H= Holding Cost = 3.60

`Q_(opt) = \sqrt{(2(6,000)12)/(3.6)}`

EOQ= 200

6,000 annual demand / 200 order size = 30 order per year

ordering cost: 30 order x $12 each = 360 dollar

average inventory 200/2 = 100

holding cost:

100 x 3.6 = 360