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Sir,
A company purchases 5000 units per quarter at an even rate throughout the year 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 per year.
I did,
Holding cost= 5*5000/2=12500
Ordering cost= 20*20000/5000=80
Ans: 12580
But the answer is 2000!!!
This seems a simple question but can’t get the right answer can you please tell me where I did wrongly.
Thank youIf they do purchase 5,000 units per quarter, then the cost will be 12,580.
However, to get the minimum inventory costs they need to order the Economic Order Quantity each time. The EOQ (using the formula) is 400 units, and if they order 400 units each time then the total inventory cost will be 2,000.
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