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16 July, 23:07

Custom Computers, Inc. assembles custom home computer systems. The heat sinks needed are bought for $14 each and are ordered in quantities of 1200 units. Annual demand is 6200 heat sinks, the annual inventory holding cost rate is $2 per unit, and the cost to place an order is estimated to be $60. Calculate the following:

A) Economic order quantity=

B) Average inventory level=

C) The number of orders placed per year=

D) The total annual inventory holding cost=

E) The total annual ordering cost=

F) The total annual cost=

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  1. 17 July, 02:14
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    EOQ = 609.91 units

    Average inventory = 600 units

    Number of orders = 5.2 times

    Annual inventory holding cost = $1,200

    Annual ordering cost = $312

    Total cost = $88,312

    Explanation:

    EOQ = √ (2 * Co * D) / Ch

    EOQ=?, Co-60, Ch - 2, D - 6200

    EOQ = √ (2 * 60 * 6200/2)

    EOQ = 609.9180273

    Average inventory = minimum level + EOQ/2

    = 1200 / 2 = 600 units

    Number of orders = Annual demand / order quantity

    = 6,200/1200 = 5.166

    Number of orders = 5.2 times

    Annual inventory holding cost = Average inventory * holding cost per unit

    =600 * $2 = $1,200

    Annual ordering cost = No of orders * ordering cost per order

    = 5.2 times * 2 = $312

    Annual inventory cost = Purchase cost + Ordering cost + Holding cost

    Purchase cost=Annual demand * unit price 14 * 6200 = 86,800

    Total cost = 86,800 + $1,200 + $312

    =88312
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