A local furniture store is examining its inventory policy and considering using an economic order quantity (EOQ) approach for a popular table set that they have had difficulty keeping in stock. They have the following information about the set: Annual demand = 5000 sets Current order quantity = 750 Carrying cost = $2.00/unit/year Order cost = $450
a. What is the current total annual cost?
b. What is the economic order quantity?
c. What is the total annual cost at the EOQ?
a. TC = (750/2) 2 + (5 000/750) (450) = 750 + 3000 = $3750
b. EOQ = Sq Root of [(2)(5000)(450)]/2 = 1500
c. TC = (1500/2)(2) + (5000/1500)(450) = 1500 + 1500 = $3000
Business
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