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A company uses an item of inventory as follows.
Purchase price $25 per unit
Annual demand 1,800 units
Ordering cost $32
Annual holding cost $4.50 per unit
EOQ 160 unitsWhat is the minimum total cost assuming a discount of 2% given on orders of 300 and over?
A $45,720.00
B $44,953.50
C $45,000.00
D $44,967.00The answer is 45720.
sir do i have to calculate the EOQ or the inventory cost?
In future you must ask in the Ask the Tutor forum is you want me to answer. This forum is for students to help each other.
The question gives you the EOQ.
It is asking for the minimum total inventory cost, so you need to calculate the total cost at the EOQ and the total cost if instead they were to order 300 each time (and therefore get the discount). The minimum total cost is whichever is the lower of the two.
I explain how to do all of this 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.
Sorry sir i didnt know that. and thank you very much, i worked it out and i got it!
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