Question

In: Finance

Cheeseburger and Taco Company purchases 12,266 boxes of cheese each year. It costs $17 to place...

Cheeseburger and Taco Company purchases 12,266 boxes of cheese each year. It costs $17 to place and ship each order and $3.44 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

What is the annual total inventory management costs of cheese inventory.

Round the answer to two decimals

Solutions

Expert Solution

Optimal order quantity = [ 2* annual demand* cost per order/ holding cost per unit per year] ^1/2
Optimal order quantity = [2 *12266*17/3.44] ^1/2
=                                                                348.19
Number of orders = 12266/348.186330763045
                                                                 35.23
Ordering cost = 35.2282640536728*17
= 598.8804889
Holding cost = 348.186330763045/2 *3.44
598.8804889
Total cost = 598.880488912437+598.880488912437
= 1197.760978

Answer is:

1197.76


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