Along with footballs, ABC Inc. also sells helmets. Following facts are provided:

Question

Along with footballs, ABC Inc. also sells helmets. Following facts are provided:
- Cost to purchase one helmet is $ 100
- Average cost of ordering per order is $ 300
- Estimated cost of carrying one (1) item in inventory is 10% of the cost of one unit
- Annual demand for the helmets is 25,000 units

a) Determine EOQ
b) Determine total number of orders that needs to be put in place in one year
c) Determine Total Ordering Cost
d) Determine Total Carrying Cost
e) Determine Total Cost (TC) for the entire year to support the annual demand of 25,000 helmets

Explanation / Answer

Annual Demand 25000 Ordering Cost $ 300.00 Holding Cost ($100 * 10%) $    10.00 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum a EOQ = 2AO / H = (2 * 25000 * 300) / 10 = 1224.745 units or, 1225 units b No of orders Orders = Annual Demand / EOQ = 25000 / 1225 = 20.41 or 21 orders per year c Total Ordering Cost = No of orders * Ordering Cost per order = 21 * 300 = $6300 d Total Holding Cost = Average Inventory*Holding Cost per unit per annum Average Inventory = EOQ / 2 Total Holding Cost = 1225 /2 * $10 = $6125 e Total Cost = Product Cost + Total Holding Cost + Total Ordering Cost Product Cost = 25000 * $ 100 = $2,500,000 Total Cost = $2,500,000 + $6,300 + $6,125 = $2,512,425

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