Shields carries a part that is popular in the manufacture of automatic sprayers.Demand for this part is 4,000 units per year;order costs amount to $30 per order,and holding costs total $1.50 per unit.The company is considering the implementation of an economic order quantity model in an effort to better manage its inventories.
Required:
A.Compute the economic order quantity.
A.The EOQ can be figured by taking the square root of: (2 x annual requirement x cost per order)¸ annual holding cost per unit.The square root of (2 x 4,000 x $30)¸ $1.50,or 160,000,is 400.
B.Compute total annual inventory costs if Shields follows the EOQ policy.
B.The ordering cost is based on 10 orders (4,000 units ¸ 400 units)x $30,and totals $300;the holding cost is computed on the company's average inventory of 200 units (400 ¸ 2)and amounts to $300 (200 x $1.50).Thus,costs at the EOQ total $600 ($300 + $300).

Question

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The Answer of Shields carries a part that is popular in the manufacture of automatic sprayers.Demand for this part is 4,000 units per year;order costs amount to $30 per order,and holding costs total $1.50 per unit.The company is considering the implementation of an economic order quantity model in an effort to better manage its inventories.
Required:
A.Compute the economic order quantity.
A.The EOQ can be figured by taking the square root of: (2 x annual requirement x cost per order)¸ annual holding cost per unit.The square root of (2 x 4,000 x $30)¸ $1.50,or 160,000,is 400.
B.Compute total annual inventory costs if Shields follows the EOQ policy.
B.The ordering cost is based on 10 orders (4,000 units ¸ 400 units)x $30,and totals $300;the holding cost is computed on the company's average inventory of 200 units (400 ¸ 2)and amounts to $300 (200 x $1.50).Thus,costs at the EOQ total $600 ($300 + $300).

Shields Carries a Part That Is Popular in the Manufacture