Question

1. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month. How much could the firm save annually in ordering and carrying costs by using the EOQ?

Answer 1

Answer:

Thus the saved amount is $320.03.

Explanation:

Step 1: The annual demand is

$A_d=P \times 12$

Substitute the value in above expression

$\begin{aligned}& A_d=750 \times 12 \\& A_d=9000\end{aligned}$

Step 2: Expression to calculate the number of crate by using the economic order quantity is

$E=\sqrt{2 A_d \frac{C_o}{C a}}$

Substitute the value in above expression

$\begin{aligned}& E=\sqrt{2(9000) \frac{(28)}{(10)(0.35)}} \\& E=379.47\end{aligned}$

Total cost is

$T=\frac{E}{2} \times(C a)+\frac{A_d}{E}\left(C_o\right)$

Step 3: Substitute the value in above expression

$\begin{aligned}& T=\frac{379.47}{2} \times(3.5)+\frac{9000}{379.47}(28) \\& T=\ 1328.156\end{aligned}$

Expression to calculate the total cost when the 750 units are ordered

$T C=\frac{P}{2} \times(C a)+\frac{A_d}{P} \times\left(C_o\right)$

Substitute the value in above expression

$\begin{aligned}& T C=\frac{750}{2} \times(3.5)+\frac{9000}{750} \times(28) \\& T C=\ 1648.5\end{aligned}$

Expression to calculate the saved amount is

$S_a=T C-T$

Substitute the value in above expression

$\begin{aligned}& S_a=1648.5-1328.156 \\& S_a=\ 320.03\end{aligned}$

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