Hawthorne Ltd. purchases 1,500,000 units of its product every year. The ordering

Question

Hawthorne Ltd. purchases 1,500,000 units of its product every year. The ordering costs are $30 per order and the annual carrying cost of one unit is $1.60. Under its current inventory policy, it purchases the units 150 times during the year, in batches of 10,000 units per order.
Required: a. Calculate the EOQ for Hawthorne Ltd. b. By ordering at the EOQ, how much in inventory costs will Hawthorne Ltd. save per year? Hawthorne Ltd. purchases 1,500,000 units of its product every year. The ordering costs are $30 per order and the annual carrying cost of one unit is $1.60. Under its current inventory policy, it purchases the units 150 times during the year, in batches of 10,000 units per order.
Required: a. Calculate the EOQ for Hawthorne Ltd. b. By ordering at the EOQ, how much in inventory costs will Hawthorne Ltd. save per year? Hawthorne Ltd. purchases 1,500,000 units of its product every year. The ordering costs are $30 per order and the annual carrying cost of one unit is $1.60. Under its current inventory policy, it purchases the units 150 times during the year, in batches of 10,000 units per order.
Required: a. Calculate the EOQ for Hawthorne Ltd. b. By ordering at the EOQ, how much in inventory costs will Hawthorne Ltd. save per year?

Explanation / Answer

a. Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]
= square root of [(2 x 1,500,000 x $30) ÷ 1.60]
   = 7,500 units per order

b. Average Inventory in EOQ = EOQ/2 = 7,500 / 2 = 3,750
  Average Inventory in normal scenario = Order/2 = 10,000 / 2 = 5,000

   Inventory cost in EOQ = 3,750 x $1.60 = $6,000 per year
   Inventory cost in normal scenario = 5,000 x $1.60 = $8,000 per year

Saving in inventory cost per year = $8,000 - $6,000 = $2,000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.