question archive The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order $300 Relevant carrying costs per year: Required annual return on investment 10% Required other costs per year $2
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order $300 Relevant carrying costs per year: Required annual return on investment 10% Required other costs per year $2
Subject:AccountingPrice:3.87 Bought7
The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
Relevant ordering costs per purchase order $300
Relevant carrying costs per year:
Required annual return on investment 10%
Required other costs per year $2.80
Annual demand is 20,000 packages per year. The purchase price per package is $32.
What is the economic order quantity?
789 units
1,429 units
1,356 units
1,415 units
What is the minimum feasible total cost of inventory?
$7,414
$8,490
$6,243
$8487
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Answer : 1,415 units
Answer : $8487
Calculated as
EOQ= (2AO/C)^1/2
where
A = Annual demand = 20000 units
O = ordering cost = $300 per order
C= carrying cost = (10% of $32)+2.80 = $6 per unit per year
so putting values
EOQ = (2*200000*300/6)^1/2 = 1414.214 or 1415 units
Calculation of minimum feasible cost
Ordering cost = (A/EOQ)*O = (20000/1415)*300 = 4242.64
Carrying cost = (EOQ/2)*C = (1415/2)*6 = 4242.64.
Total cost = 4242.64+4242.64 = 8485.68
so nearest answer is 8487
