Question

In the basic EOQ model, if annual demand is 50, carrying/holding cost is $2, and ordering cost is $15, This will result in a total annual inventory cost of:_______

Answer 1

$104.77

Step-by-step explanation:

Total annual inventory cost (TC)= DC + (Q/2)H + (D/Q)S

Where,

D = annual demand = 50

S = Ordering cost = $15

H = Holding cost = $2

Q= ?

But,

EOQ = √2DS/H

= √ 2 * 50 * 15 / 2

EOQ = 27.39 units

TC = 50 × 2 + 2(27.39/2) + 15(50/27.39)

= 50 + 27.39 + 27.38

= $104.77