Ordering cost based on minimum-cost economic order quantity

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Reference no: EM132230920

The sales of a popular mouthwash at Merkle Pharmacies over the past 6 months have averaged 1,700 cases per month resulting in 20,400 cases per month, which is the current order quantity. Merkle’s cost is $13.00 per case. The company estimates its cost of capital to be 14 percent. Insurance, taxes, breakage, handling, and pilferage are estimated to be approximately 7 percent of item cost. Thus, the annual inventory-holding costs are estimated to be 21 percent of item cost. The cost of placing an order is estimated to be $36.00 per order regardless of the quantity requested in the order. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Questions

1. What is the minimum-cost economic order quantity? Round your answer to the nearest whole number.

cases

2. What is the annual ordering cost based on the minimum-cost economic order quantity? Use the rounded EOQ value in your calculations. Round your answer to the nearest cent.

3. What is the annual inventory holding cost based on the minimum-cost economic order quantity? Use the rounded EOQ value in your calculations. Round your answer to the nearest cent.

4. What is the total annual cost based on the minimum-cost economic order quantity? Use the rounded EOQ value in your calculations. Round your answer to the nearest cent.

5. What are the total cost savings in absolute and relative terms caused by using the minimum-cost economic order quantity instead of the current purchasing policy of Q = 1,700? Use the rounded EOQ value in your calculations. Round your answer for the absolute cost savings to the nearest cent and answer for relative cost savings to the nearest whole number.

EOQ Benefit: $

EOQ Benefit (%): %

6. Choose the correct graph for the cost functions.

Reference no: EM132230920

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