Question

A company is planning for its financing needs and uses the basic fixed-order quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150?

(Show your Work)

A) $1,501,600
B) $1,501,600
C) $500,687
D) $500,687
E) None of the above

Answer 1

$1,501,600

Step-by-step explanation:

We have Q = 400

Average inventory = Q/ 2

= 400/2

= 200

Holding cost/year = $4

Annual holding cost = $800

Annual set up cost = 10,000/400

= 25

25 x 32 = 800

Demand x cost per unit

= 10000 x $150

= 1,500,000

Total cost TC = 1500000 + 800 + 800

= $1,501,600