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2. PC Calculators sell calculators that it purchases for $15 each. It costs PC $60 each time calculators are ordered, and carrying costs are 20% of the calculator's purchase price. Annual demand is 100,000 calculators. (a) Compute the EOQ. (b) Compute the inventory costs if PC orders are at (i) the EOQ amount, (ii) 1000 calculators, (iii) 2500 calculators.

Sagot :

Answer: See explanation

Explanation:

The following can be deduced from the question:

Purchase price = $15,

Ordering cost = $60

Carrying cost = 20 % × $15 = $3

(a) The EOQ (economic order quantity) goes thus:

= ✓(2 × Annual demand × ordering cost / carrying cost )

= ✓(2 × 100000 × 60 / 3)

= ✓(12000000 / 3)

= ✓(4000000)

EOQ = 2000 calculators

b. The inventory cost when PC orders are at the EOQ amount goes thus:

Note that:

Inventory cost = Cost of purchase + Ordering cost + Carrying cost

Cost of purchase = $2000 × $15 = $30000

Ordering cost = 100000 / 2000 × 60 = $3000

Carrying cost = 20% × purchase price = 20% × $30000 = $6000

Then, the total cost will be:

= $30000 + $3000 + $6000

= $39000

b. Inventory cost at 1000 calculators will be:

Purchase cost = $1000 × $15 = $15000

Ordering Cost = Annual demand / Ordering quantity × cost of placing the order

= 100000 / 1000 × 60

= $6000

Carrying cost = 20% × $15000 = $3000

Then, the total inventory cost will be:

= $15000 + $6000 + $3000

= $24000

(iii) Inventory cost at 2500 calculators will be:

Purchase cost = 2500 × purchase price = $2500 × $15

= $37500

Ordering Cost of order = 100000 / 2500 × 60

= $2400

Carrying cost = 20% × $37500 = $7500

Total inventory cost:

= $37500 + $2400 + $7500

= $47400

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