Uses the economic order quantity model

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A company uses 1,000 units of a component in 1 year. The cost of ordering is $200 per order. The cost of holding is approximately equivalent to 20% (of the cost per unit). The cost of each unit is $20.00. At present the company follows a policy of buying all 1,000 units that it requires in 1 year. These units are bought in 1 purchase order, at the beginning of the year.

Calculate the savings that the company will make if it uses the Economic Order Quantity model. Explain your results.

Reference no: EM131625986

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