Wood County Hospital consumes 1,000 boxes of bandages per week. The price of the bandages is $35 per box, and the hospital operates 52 weeks per year. The cost of processing an order is $15, and the cost of holding one box for a hear is 15 % of the value of the material. a) The hospital orders bandages in lot sizes of 900 boxes. What extra cost does the hospital incur, which it could save by using the EOQ method?

Answer:The extra cost is$ 0.72

Explanation:

Using the formula √2DCO/CC

Where CO = ordering cost per order

D = Demand per annum

CC = carrying cost or holding cost per annum

Demand = 1000*52 = 52,000 per annum

ordering cost = $15 per order

Holding Cost = 15/100*52,000 = 7,800 per annum

√2DCO/CC

√2*15*52,000/7,800

√1,560,000/7,800

√200

= $14.14

Extra Cost wiil be

900*52 = 46,800 per annum

√2*15 * 46,800/7,800

√1,404,000/7,800

√180

13.42

Therefore the extra cost is

14.14 - 13.42

= $0.72