A firm that stocks lightbulbs gathers the following information: Demand = 19,500 units per year, Ordering cost = $25 per order, Holding cost = $4 per unit per year. The firm wants to calculate the: a) EOQ for the lightbulbs. b) Annual holding costs for the lightbulbs. c) Annual ordering costs for the lightbulbs.
Accepted Solution
A:
Answer:Step-by-step explanation:Demand = 19,500 units per year (D)Ordering cost = $25 per order (O)Holding cost = $4 per unit per year (C)a) [tex]EOQ=\sqrt{ \frac{2\times D\times O}{C}}[/tex] [tex]EOQ=\sqrt{ \frac{2\times 19,500\times 25}{4}}[/tex] = [tex]\sqrt{\frac{975000}{4}}[/tex] = [tex]\sqrt{243,750}[/tex] = 493.71044 ≈ 494b) Annual holding cost = [tex]4\times(\frac{Q}{2})[/tex] = [tex]4\times(\frac{494}{2})[/tex] = 4 × 247 = 988c) Annual ordering cost = [tex]O\times(\frac{D}{Q} )[/tex] = [tex]25\times(\frac{19,500}{494} )[/tex] = 25 × 39.47 = 986.75AOQ = 494Annual holding cost = 988Annual ordering cost = 986.75