Dorning Shade Company will use an estimated 50,000 gumbands inits manufacturing

Question

Dorning Shade Company will use an estimated 50,000 gumbands inits manufacturing process next year. The carrying cost of gum bandinventory is $.04 per unit, and the cost of reordering gumbands is$50 per order. What is Dorning Shade's economic odering quantityfor gumbands (rounds to the nearest 100 gumbands)? a. 11,200 b.10,700 c.9,700 d.8,100 Dorning Shade Company will use an estimated 50,000 gumbands inits manufacturing process next year. The carrying cost of gum bandinventory is $.04 per unit, and the cost of reordering gumbands is$50 per order. What is Dorning Shade's economic odering quantityfor gumbands (rounds to the nearest 100 gumbands)? a. 11,200 b.10,700 c.9,700 d.8,100

Explanation / Answer

Demand (D) = 50000 gumbands

Ordering cost per order (Co) = $ 50

Carrying cost per unit per annum (Ch) = $0.04

Economic ordering quantity = (2* D*Ch) / Co

                                                = (2*50000*50)/0.04

                                                = 11200 gumbands

So, the answer is (a)11200

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