Reference no: EM132763068
Spencer Industries produces a single product, and has the following information available concerning this item:
Relevant ordering costs per purchase order $400
Relevant carrying costs/unit per year:
Required annual return on investment 20%
(Hurdle Rate)
Required other costs per year (insurance, etc.) $10.00
Annual demand is 100,000 units per year. The purchase price per package is $80.
When you are calculating total carrying cost/unit, don't forget to add opportunity cost to the $10.00/unit.
Problem 1: What is the economic order quantity (EOQ)?
a. 1,554 units
b. 1,654 units
c. 1,754 units
d. 1,854 units
Problem 2: What are the relevant total costs (ordering cost + carrying cost) if Spencer Industries insists on using an order size equal to 2,000 units?
a. $44,000
b. $46,000
c. $48,000
d. $50,000