MAEOQ

A company is planning to purchase 90,800 units of a particular item in the year ahead. The item is purchased in boxes each containing 10 units of the item, at a price of $200 per box. A safety inventory of 250 boxes is kept. The cost of holding an item in inventory for a year (including insurance, interest and space costs) is 15% of the purchase price. The cost of placing and receiving orders is to be estimated from cost data collected relating to similar orders, where costs of $5,910 were incurred on 30 orders. It should be assumed that ordering costs change in proportion to the number of orders placed. 2% should be added to the above ordering costs to allow for inflation. Assume that usage of the item will be even over the year. Workings: To avoid confusion this question is best tackled by working in boxes not units. Co = 5910/30 x 1.02 = 200.94 Ch = 0.15 x 200 = $30 per box D = 90,800/10 = 9,080 boxes EOQ = ?(2x200.94) x 9,080/30) = 349 boxes No. of orders per year = 9,080/349 = 26 26 orders per annum is equivalent to placing an order every 2 weeks (52 weeks / 26 orders). I have only one question, in Co, how did we get 1.02?