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?
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