Question 12 The materials manager for a billiard ball maker places orders for pl
ID: 361567 • Letter: Q
Question
Question 12
The materials manager for a billiard ball maker places orders for plastic, one of the raw materials used in producing billiard balls. She knows that demand for plastic is 10,952 kilograms per year, and that it costs $13.69 per year to carry a kilogram of plastic in inventory. She also knows that the order costs for plastic are $100 per order, it costs $0.05 per kilogram, and that the lead time for delivery is four (4) days. Assume 365 days in a year. The EOQ is 400 kg.
What is the Total Cost (TC) at the EOQ, rounded to the nearest dollar?
$6024
$2738
$9000
$8762
None of these
$6024
$2738
$9000
$8762
None of these
Explanation / Answer
Annual demand (D) = 10952 kg
Holding cost (H) = $13.69
Ordering cost (S) = $100
EOQ = 400 kg
Cost per kg = $0.05
Annual holding cost =( EOQ / 2)H = (400/2)13.69 = $2738
Annual Ordering cost = (D/EOQ)S = (10952/400)100 = $2738
Annual purchase cost = D x cost = 10952 x 0.05 = $547.6
Total cost = Holding cost + ordering cost + purchase cost
= $2738 + $2738 + $547.6
= $6023.6 or rounded to $6024
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