LESSON #10: INVENTORY MANAGEMENT HOMEWORK EOQ & OPR (2) Owen-King Company sells
ID: 2561330 • Letter: L
Question
LESSON #10: INVENTORY MANAGEMENT HOMEWORK
EOQ & OPR
(2) Owen-King Company sells optical equipment. Lens Company manufactures special glass lenses. Owen-King Company orders 5,200 lenses per year at $20 per lens. Owen-King Company has a 30% hurdle rate. The following data are available:
Relevant ordering costs $21.25/ per purchase order
Relevant carrying cost--insurance, handling, breakage,
etc., per year (Do not forget to include opportunity cost) $2.50/unit
Required:
the economic order quantity (i.e., the number of units that should be
bought per purchase order)? answer: 161. lens
2. What is the total carrying cost?
3. What is the total ordering cost?
4. What is the total annual cost at the EOQ?
Explanation / Answer
a) Total Carrying cost
Cost of carrying one unit per year =
(cost per unit * Hurdle rate)+carrying cost per unit
($20per lens*30%)+$2.5/unit
=
8.5
Total carrying cost per year =
(annual consumption * carrying cost per unit)
=
$44,200
b) Total ordering cost
No of orders per year =
Annual Consumption
Quantity ordered (EOQ)
(5200 (annual consumption) /161 (Economic Order Quantity)
32.29813665 orders per year
(32.298(orders per year) * $21.25 (per purchase order)
Total ordering cost is
686.375
c) Total annual cost at the EOQ = Annual carrying cost + Annual ordering cost
= ($44,200+$686.375)
= $44,886.375
Cost of carrying one unit per year =
(cost per unit * Hurdle rate)+carrying cost per unit
($20per lens*30%)+$2.5/unit
=
8.5
Total carrying cost per year =
(annual consumption * carrying cost per unit)
=
$44,200
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