Question

Using the fixed-order-quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4?

A) $849.
B) $1,200.
C) $1,889.
D) $2,267.
E) $2,400.

Answer 1

E. $2,400

Step-by-step explanation:

Given that;

Annual demand = 36,000 units

Cost per order = $80

Holding cost per unit per year = $4

Firstly, we will need to calculate the EOQ.

EOQ = √2DS / H

= √ 2 × 36,000 × $80 / $4

EOQ = 1,200 units

Total ordering cost per year therefore is

= Annual demand / EOQ × Cost per order

= (36,000 / 1,200) × $80

= $2,400