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a retailer sells 50000 units of a product and demand is even throughout the year. the cost of placing each order is 5 dollars. the cost of holding one unit of product for one year is 2 dollars. the retailer uses the EOQ model to determine the size for this product.
What is the total annual cost of ordering and holding this product?
There is no point in typing out a full question and expecting to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.
This is simple application of the EOQ formula that is provided in the exam.
How to use it is explained in detail in my free lectures on inventory control.
The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
i dont understand the term even throughout the year, what does that mean? its asking for total annual cost of holding and ordering so should we not include purchase price multiplied by annual demand. Also i calculated the answer and it comes Co=600000/50000×5=60
please let me know if im calculating it the right way.
The demand is 50,000 units a year. Spread evenly means that they are selling the same quantity each day and nothing some days selling a lot and some days selling very few – the economic order quantity formula assumes that this is the case.
Your calculations are not correct because the economic order quantity is not 50,000. You need to use the formula to calculate how many are ordered each time.
Have you actually watched my free lectures (because you cannot expect me to type them out again here 🙂 )?