A company is planning for its financing needs and uses the basic fixed-order quantity inventory model.Which of the following is the total cost (TC)of the inventory given an annual demand of 10,000,setup cost of $32,a holding cost per unit per year of $4,an EOQ of 400 units,and a cost per unit of inventory of $150?
A) $1,501,600
B) $1,498,200
C) $500,687
D) $499,313
E) None of the above

Question

Quizplus · Accepted Answer

Use equation 11.2.Q = 400.Average Inventory = Q/2 = 200.Holding cost/year = $4.Thus,annual holding cost = $800.Annual set-up cost = 10,000/400 = 25 x $32 = 800.Demand x cost per unit = 10,000 x $150 = 1,500,000.Hence,TC = $1,500,000 + 800 + 800 = $1,501,600.

A Company Is Planning for Its Financing Needs and Uses