Joe Henry\'s machine shop uses 2, 550 brackets during the course of a year. Thes

Question

Joe Henry's machine shop uses 2, 550 brackets during the course of a year. These brackets are purchased from a supplier 90 miles away. The following information is known about the brackets: What is the EOQ? 239.53 units (round your response to two decimal places). What is the average inventory if the EOQ is used? 119.77 units (round your response to two decimal places). What would be the annual inventory holding cost? $ 191.62 (round your response to two decimal places). Given the EOQ, how many orders will be made annually? 10.65 orders (round your response to two decimal places). What would be the annual order cost? $ 191.63 (round your response to two decimal places). Given the EOQ, what is the total annual cost of managing (ordering and holding) the inventory? $ (round your response to two decimal places).

Explanation / Answer

a) We calculate EOQ using the formula

Q = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per Order) = SQRT (2*2550*18/1.6) = 239.53 units.

b) Average inventory = (Q + 0)/ 2 = 119.77 units

Annual Inventory Holding Cost = 119.77*1.6 = $191.62

c) Number of orders annually = 2550/239.53 = 10.65

Annual Order Cost = 10.65*18 = $191.63

d) Total Annual cost of managing the inventory = 191.62 + 191.63 = $ 383.25

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