3:48 ezto.mheducation.com E connect Problem 11-21 Item X is a standard item stoc

Question

3:48 ezto.mheducation.com E connect Problem 11-21 Item X is a standard item stocked in a company's inventory of component parts Each year the frm, on a random basis, uses about 1,600 of item X which costs $25 each. Storage costs, which ind de insurance and cost of apt·ndut to S6 per unit of average inventory. Every tirme an order is placed fortam X, costs S12. a. Whenever item X is ordered, what should the order size be? (Round your answer to the nearest whole number.) b. What is the annual cost for ordering tem X7 (Round your answer to 2 decimal places.) c. What is the annual cost for storing item X7 (Round your answer to 2 decimal places.)

Explanation / Answer

1.

A.

Equivalent order quantity (EOQ) = (2*annual demand*ordering cost/storage cost)^.5

EOQ = (2*1600*12/6)^.5

EOQ = 80 units

B.

Annual ordering cost = (Annual demand / EOQ)*ordering cost per order

Annual ordering cost = (1600/80)*12 = $240

C.

Annual cost of storage = (EOQ/2)* storage per unit per year

Annual cost of storage = (80/2)*6 = $240

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