Question

In: Accounting

Comprehensive with safety stock at EOQ The following items relate to stock item NextZen:

Comprehensive with safety stock at EOQ

The following items relate to stock item NextZen:

Estimated usage for per annum (2 orders per annum of 2,500 units) = 5,000 units

Cost of placing each order = $14.40

Fixed ordering, receiving and reordering cost = $6,000 per annum

Cost of holding one unit per annum = $10.00

Current policy is to order twice a year Required:

a)Determine the Economic Order Quantity for product NextZen.

b)Savings if any, if you order the Economic Order Quantity, rather than maintaining the current policy of two orders per year.

Expert Solution

Formula to calculate EOQ is

where F = Fixed Cost per Order = $ 3000

D = Units Demand per Year = 5000 units

Cost/Unit/Year = $ 10

Thus, upon solving it, EOQ will come to 1732 units

Part B

Where, C=Carrying cost per unit per year
Q=Quantity of each order
F=Fixed cost per order
D=Demand in units per year

Upon solving this, the cost of invnetory if ordered as per EOQ will be $17,320.51 where as under current method will be $ 20,000 which will be higher than $ 2,679.49

ekkarill92 answered 2 years ago

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