order for the auto parts shop is $80; the holding cost of carrying 1 unit is $1.2 per year. The shop has 360 working days per year. The lead time is usually 12 working days. Determine the total carrying cost.

Question:

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An auto parts shop carries an oil filter for trucks. The annual demand for the oil filter is roughly 1200 units. The ordering cost per order for the auto parts shop is $80; the holding cost of carrying 1 unit is $1.2 per year. The shop has 360 working days per year The lead time is usually 12 working days.

Determine the total carrying cost.

Answer:

Total carrying cost = $240

Explanation:

Given Data;

Annual demand (D) = 1200

Ordering cost (w) = $80

Per unit cost (cn) = $1.2

calculating the economic order quantity (EOQ) using the formula;

EOQ = √[ (2Dw) / cn]

Where D = annual demand

w = ordering cost

cn = per unit cost

Substituting into the formula, we have

EOQ = √[ (2*1200*80) / 1.2]

EOQ = √ (192,000/1.2)

= √160000

= 400 units

Number of orders = 1200/400

= 3 orders

Therefore,

Total carrying cost = number of order * ordering cost

= 3 * $80

= $240

Total carrying cost is $240.

Explanation:

EOQ=√ (2*D*Co) / Cn

EOQ = 400 units

Annual carrying cost = (EOQ/2) * Cn

= (400/2) * 1.20

=$240