Icy Snowmobile, Inc., has an annual demand for 1,200 snowmobiles. Their purchase
ID: 420367 • Letter: I
Question
Icy Snowmobile, Inc., has an annual demand for 1,200 snowmobiles. Their purchase cost for each snowmobile is $2,500. It costs about $250 to place an order, and the holding rate is 35 percent of the unit cost.
a. The economic order quantity is _____. (Round your answer to the nearest whole unit.)
b. The annual holding cost is $ _____. (Round your answer to the nearest dollar.)
c. The annual ordering cost is $ _____. (Round your answer to the nearest dollar.)
d. The annual total inventory cost is $ ___. (Round your answer to the nearest dollar.)
Explanation / Answer
In the question:-
Demand = 1,200 snowmobile
Ordering cost = $250
Holding cost=0.35* $2,500=$875
EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)
EOQ = SQRT (( 2* 1200 * 250 )/875) = 26.19 Units ~ 26 Units
Annual holding costs = (Quantity of items) * (Holding Cost) / 2
= 26 * 875/2 = $11375
Annual ordering costs = (Demand * Order Cost)/ Q
Annual ordering costs for the workbooks = (1200 * 250) / 26 = $ 11538.5
Total Annual cost= Purchase cost +Annual ordering cost + Annual holding cost
Total Annual cost=1200*2500 +11375+11538.5 =$3022913.5
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