Ask Question
26 January, 09:41

Abey Kuruvilla, of Parkside Plumbing, uses 1,220 of a certain spare part that costs $26 for each order, with an annual holding cost of $25.

a) Calculate the total cost for order sizes of 25, 40, 50, 60, and 100 (round your responses to two decimal places).

b) What is the economic order quantity?

+2
Answers (1)
  1. 26 January, 10:04
    0
    Total cost = Total ordering cost + Total holding cost

    Total cost = DCo/Q + QH/2

    Where D = Annual demand, Co = Ordering cost per order and H = holding cost per item per annum.

    For 25 Order Size

    Total cost = 1,220 x $26/25 + 25 x $25/2

    Total cost = $1,268.80 + $312.50 = $1,581.30

    For 40 Order Size

    Total cost = 1,220 x $26/40 + 40 x $25/2

    Total cost = $793 + $500 = $1,293.00

    For 50 Order Size

    Total cost = 1,220 x $26/50 + 50 x $25/2

    Total cost = $634.40 + $625 = $1,259.40

    For 60 Order Size

    Total cost = 1,220 x $26/60 + 60 x $25/2

    Total cost = $528.67 + $750 = $1,278.67

    For 100 Order Size

    Total cost = 1,220 x $26/100 + 100 x $25/2

    Total cost = $317.20 + $1,250 = $1,567.20

    b. The economic order quantity is 50 units because it reduces the total cost to $1,259.40

    Explanation:

    In this case, we need to determine the total costs based on different order sizes. Thus, economic order quantity is the order size that minimises the total cost.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Abey Kuruvilla, of Parkside Plumbing, uses 1,220 of a certain spare part that costs $26 for each order, with an annual holding cost of $25. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers