6 Problem 20-21 Item X is a standard item stocked in a company\'s inventory of c

Question

6 Problem 20-21 Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2,000 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $5 per unit of average inventory. Every time an order is placed for more of item X, it costs $10. points a. Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number.) eBook Order size Hint b. What is the annual cost for ordering item X? (Round your answer to 2 decimal places.) Print Ordering cost References c. What is the annual cost for storing item X? (Round your answer to 2 decimal places.) Holding cost

Explanation / Answer

Given:

D = 2000 units per year

C = $25 per unit

H = $5 per unit per year

S = $10 per order

A.Whenever item X is ordered, what should the order size be?

EOQ= ?2DS/H

=?2*2000*10/5

=?40000/5

=?8000

=89

B.What is the annual cost for ordering item X?

Annual ordering cost = (D/Q) * S

= (2000/89) * 10

=224.72

C.What is the annual cost for storing item X?

Annual holding cost = (Q/2) * H

= (89/2)*5

=222.50

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