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11:18? a ecourses.pvamu.edu You are logged in as Trevonne Hatter Points out of 15.00 Flag question A company uses a particular product for its operations. The yearly usage is about 2599 units per year. The company buys the product from a supplier for $63 per unit. The cost to place an order and process a shipment from the supplier is estimated to be $30. The order lead time is 6 working days. The unit holding cost per year is 22% of the unit purchase cost. The company operates 250 days a year. Assume that EOQ model is appropriate for this problem What is the annual purchase cost? Answer:Explanation / Answer
EOQ = (2*annual demand*ordering cost/holding cost per unit per year)^.5
EOQ = (2*2599*30/(.22*63))^.5
EOQ = 106.07 or 106 units
Annual holding cost = (106/2)*.22*63 = $734.58
Annual ordering cost = (2599/106)*30 = $735.57
Purchase cost = 2599*63
Purchase cost = $163737
Total purchase cost = Purchase cost+ Annual holding cost+ Annual ordering cost
Total purchase cost = 163737 + 734.58 + 735.57
Total purchase cost = $165207.15
Total cost without the purchase value of product =734.58 + 735.57
Total cost without the purchase value of product = $1470.15
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