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You have been asked to check EOQ figures. You have been given the following data: demand is 16,761 units per quarter, S = $120 per setup, P = $5 per unit, and H = $1.25 per unit per year, They typically order Q= 3,588 units every time an order is placed. Calculate total annual inventory costs including setup, holding and product cost using their current ordering plan.

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Kolawole845

Answer:

 Total cost =$339,704.55

Explanation:

Annual inventory demand = quarterly demand ×  4

=  16,761  ×4 = 67044

Purchase cost

= cost per unit × annual demand

= 67044 × $5  = $335,220.00

Annual set-up cost  

= set up cost r × no of set-up

=( 67044/ 3,58) × $120= 2242.274247

Annual holding cost

= Holding cost × average inventory

(3,588/2 )× $5  = $2242.5

Total annual inventory cost

=   2242.27+ $2242.5 + 335,220

=  $339,704.55

Yes, the EOQ is correct because the annual set-up cost = Annual holding cost

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