Order Cost

Question 1

A company uses 5000 items per annum which has a price of $2 each. The ordering costs are $150 per order and holding costs are $1.50 per item per annum.

(a). Calculate the EOQ

(b). Using the EOQ as the number of items ordered, calculate the

i. number of orders per annum ii. average stock iii. annual stock holding cost iv. annual order cost v. total annual inventory cost vi. total annual cost of items and inventory

(c). The company is offered a 5% discount (discounted price is $1.90) for orders of 5000 and over. Order cost and holding cost remain at $150 per order and $1.50 respectively. Assuming that the company orders 5000 items per order,

calculate the:

i. number of orders per annum ii. average stock iii. annual stock holding cost iv. annual order cost v. annual inventory cost vi. total annual cost of items and inventory

(d). Which of the two quantities should the company decide on to minimize the total annual cost.

Question 2