A bakery buys sugar in 15-pound bags. The bakery uses 5000 bags of sugar each year. Carrying costs are $20 per bag per year. Ordering costs are estimated at $5 per order. Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags. It takes 5 days for each order of sugar to be filled. What is the total cost of ordering and holding sugar

Question

Business

Sofia Roberson

22 September, 10:56

A bakery buys sugar in 15-pound bags. The bakery uses 5000 bags of sugar each year. Carrying costs are $20 per bag per year. Ordering costs are estimated at $5 per order. Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags. It takes 5 days for each order of sugar to be filled. What is the total cost of ordering and holding sugar

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Barton · Answer 1

the total cost of ordering and holding sugar is $1,000 per year

Explanation:

Step 1 Calculate the Economic Order Quantity (EOQ).

EOQ = √ (2*Total Demand*Ordering cost) / Holding Cost per Unit

= √ (2*250*20*5) / 20

= 50

Step 2 Calculate the total cost of ordering and holding sugar

Total cost = Ordering Cost + Holding Cost

= (250*20) / 50 * $5 + 50/2 * $20

= $500+$500

= $1,000

Therefore, the total cost of ordering and holding sugar is $1,000 per year