Omoi Zakka Shop stocks stationery and has the following char

Omoi Zakka Shop stocks stationery and has the following characteristics: Demand = 19,500 units/year, Ordering Cost = $25/order, and Holding Cost = $4/unit/year. Given EOQ, what approximately are the annual holding costs for the stationery?

Solution

EOQ = SQRT ((2*D*S)/H)

D = 19500 units

S = $25

H = $4.

Thus EOQ = SQRT((2*19500*25)/4) = SQRT(975,000/4) = SQRT(243,750) = 493.71

annual holding cost = (order quantity/2)*holding cost per unit per year

= (493.71/2)*4 = $987.42 is the annual holding costs for the stationery.