Use the following information to determine the implied inventory holding cost: EOQ = 95 units Demand...

Use the following information to determine the implied inventory holding cost:

EOQ = 95 units
Demand = 350 units
Fixed Ordering Costs = $5

A. $0.39 B. $12.50 C. $2.58 D. $2.56.
PLEASE SHOW YOUR WORK

Expert Solution

Solution:-

Economic order quantity (EOQ) = Square root of [(2 * Annual demand * Ordering cost per unit) / Holding cost]

Given,

EOQ = 95 units

Demand = 350 units

Fixed ordering cost per unit = $5

95 = Square root of [(2 * 350 * $5) / Holding cost]

95 = Square root of ($3,500 / Holding cost)

Squaring on both sides

$3,500 / Holding cost = 95²

Holding cost = $3,500 / 9025

= $0.387 or $0.39 approx

Therefore the implied inventory holding cost is $0.39 which is option A.

jeff jeffy answered 2 years ago

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