Our home construction company still buys nails in 15-pound boxes but now we use an average of 4765 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $0.70 per order. Annual carrying costs are $0.5 per bag. What will be their total cost of ordering and carrying the nails?

=$57.754

Explanation:

The question is to determine The Home Construction Company's Total Cost of Ordering and Carrying the nails as follows:

Known items

What is the demand or D = 4,765 boxes

What is the Fixed Ordering Cost = $0.70

The Carrying Cost = $0.5 per bag

Therefore the Equilibrum Order Quantity

= (2FD/C) ∧1/2

= 2 (0.70x 4,765) =

=6,671/0.5

= 13,342∧1/2

=115.507 or 116 boxes

Now the total Cost for Ordering and Carrying

= C (EOQ/2) + F (D/EOQ)

=$0.5 (58) + $0.70 (4,765/116)

= 29 + 28.754

=$57.754