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24 November, 22:28

Show the total cost expression and calculate the EOQ for an item with holding cost rate 18%, unit cost $8.00, annual demand of 40000, and ordering cost of $48.

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  1. 24 November, 22:31
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    Total cost = Total ordering cost + Total holding cost

    Total cost = DCo + QH

    Q 2

    Where

    D = Annual demand

    Co = Ordering cost per order

    Q = EOQ

    H = Holding cost per item per annum

    D = 40,000 units

    Co = $48

    H = 18% x $8.00 = $1.44

    EOQ = √2DCo

    H

    EOQ = √2 x 40,000 x $48

    $1.44

    EOQ = 1,633 units

    Explanation:

    EOQ equals 2 multiplied by annual demand and ordering cost divided by holding cost per item per annum. The holding cost per item per annum is calculated as holding cost rate multiplied by unit cost.
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