Homework SourseABC Co has material that has a 7 per meter carrying cost per
ABC Co. has material that has a $7 per meter carrying cost per year. This textile is used at a rate of 25,000 meters per year, and ordering costs are $5 per order.
a. What is the economic order quantity for this fabric?
b. What are the annual inventory costs for this company if it orders in this quantity?
Solution
EOQ = (2DO/I) 2
EOQ = (2 *25000 *5/7)2 = 189 units
Annual Inventory Cost:
Carrying cost: 189 /2 * 7 = $ 661.50
Ordering cost: 25000 /189*5 = 661.40
Total Inventory cost = 661.50 + 661.40 = 1322.90
| Annual demand (D): 25000 meters | |
| Carrying cost (I): 7 per meter | |
| Ordering cost (O): $ 5 per order |
