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A company purchases 5,000 units per quarter at even rate throughout the year.

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A company purchases 5,000 units per quarter at even rate throughout the year.

Each order placed with the supplier incurs a delivery charge of $20.

The annual cost of holding one unit in inventory is $5.

What is the minimum total of the inventory costs (order costs plus holding costs) per year?

May 2nd 2014 AN ACCA USER 340 Points

1 Reply

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Calculate EOQ
= 400

number of Orders = total demand / eoq = 20,000/400= 50
Cost of Orders = number of orders x per order cost = 50 x 20 = 1000
Cost of holding = average inventory x per unit cost = ((1000 (EOQ) + 0) /2 ) x 5 = 1000

Total cost will be = 2000

this will be the minimum cost because EOQ units wil always lead to minimum cost

May 10th 2014 AN ACCA USER 1,610 Points
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