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Annual savings in carrying cost

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Reference no: EM133327040

Question 1.

A company carries 10 items in stock, each with an economic order quantity of $20,000. Through a program of component standardization, the 10 items are reduced to 5. The total annual demand is the same, but the annual demand for each item is twice what it was before. In Chapter 10, we learned that the economic order quantity varies as the square root of the annual demand. Since the annual demand for each item is now doubled, calculate

a. The new EOQ.

b. The total average inventory before standardization.

c. The total average inventory after standardization.

Question 2.

In problem Question 1, if the annual carrying cost is 18% per unit, what will be the annual savings in carrying cost?

Reference no: EM133327040

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