Ruler Inc. is the distributor of a very popular brand of rulers that it sells fo
ID: 382713 • Letter: R
Question
Ruler Inc. is the distributor of a very popular brand of rulers that it sells for $1.25 per pack. Ruler Inc. sells 500 packs per week. It orders the rulers from Measurement Manufacturers (MM). MM sells packs to Ruler Inc. at $0.50 per pack and charges a flat fee of $20 per order for shipping and handling. Ruler’s annual inventory holding cost percentage is 25 percent.
1)What is the economic order quantity (EOQ)?
2)If Ruler Inc. orders 1000 packs with each order, what is the sum of Ruler’s ordering and holding costs per year?
Explanation / Answer
Annual demand for rulers = 500 packs / week x 52 = D = 26,000 packs
Ordering cost ( shipping and handling ) = Co = $20
Unit inventory holding cost = Ch = 25 percent $1.25 / pack = $ 0.3125
Economic Order Quantity ( EOQ )
= Square root ( 2 x Co x D / Ch )
= Square root ( 2 x 20 x 26000/ 0.3125 )
= 1824.28 ( 1824 rounded to nearest whole number )
ECONOMIC ORDER QUANTITY = 1824 PACKS OF RULERS
If order quantity = 1000 packs
Annual ordering cost = Ordering cost x Number of orders= Co x Annual demand/ Order quantity = Co x D/1000 = $20 x 26000/1000 = $520
Annual inventory holding cost = Ch x Average inventory = Ch x Order quantity/ 2 = $0.3125 x 1000/2 = $ 156.25
Sum of Ruler’s ordering and holding cost per year = $520 + $156.25 = $676.25
SUM OF RULER’S ORDERING AND HOLDING COST PER YEAR = $676.25
ECONOMIC ORDER QUANTITY = 1824 PACKS OF RULERS
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.