Answer:
(a) 494 units
(b) $988
(c) $1,000
Explanation:
Demand (D) = 19,500 units/year
Ordering cost (S) = $25/order
Holding cost (H) = $4/unit/year
a) The EOQ is given by the following relationship:
[tex]EOQ =\sqrt{\frac{2*D*S}{H} } \\EOQ= \sqrt{\frac{2*19,500*25}{4}} \\\\EOQ= 493.7[/tex]
The EOQ, rounded to the nearest whole unit, is 494
b) Annual holding costs are given by:
[tex]C_{hold} = \frac{EOQ}{2}*H\\C_{hold} = \frac{494}{2}*4 \\C_{hold} = \$988[/tex]
c) Annual ordering costs are defined by the number of orders required multiplied by the cost per order:
[tex]Cost_{order} = N*S \\N= \frac{19,500}{494}\ \ \ \ *round\ to\ next\ whole\ number\\N=40\\Cost_{order} = 40*25\\Cost_{order} = \$1,000[/tex]
