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30 November, 15:03

Using the fixed-order quantity model, which of the following is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $80, and a holding cost per unit per year of $4.

A) $849

B) $1,200

C) $1,889

D) $2,267

E) $2,400

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Answers (1)
  1. 30 November, 15:43
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    E) $2,400

    Explanation:

    optimal order quantity = sqrt{ (2*D*S) / H}

    = sqrt{ (2*36,000*$80) / $4}

    = $1,200

    number of orders per year = $36,000/$1,200

    = $30

    total ordering cost = $30*$80

    = $2,400

    Therefore, The total ordering cost of inventory is $2,400.
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