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Running head: ANSWERS TO QUESTIONS
Answers to questions:
ANSWERS TO QUESTIONS
Economic order quantity= ((2x annual demand x cost per order)/holding cost per unit per
EOQ= ((2*5000*(20+30)/2) ^0.5= 500
Number of orders= 5000/500=10
Time between orders= 50/10= 5 weeks
Annual cost of ordering= no. of orders placed in a year x cost per order= 10 orders*(20+30)=
Annual cost of holding stock=Average units × Holding cost per unit= 500/2 * 2= $500
Assumptions made when deriving EOQ
Total units to be consumed during the period is known with certainty.
The total ordering cost remains unchanged throughout the period.
The inventory cost remains unchanged throughout the period.
There are no quantity discounts available.
The whole quantity of ordered inventory is delivered in one batch.
Total inventory cost when order quantity is 500
=Ordering Cost+ h...
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