A firm uses an inventory item with the following characteristics. $\begin{array}{lr}
\text {Cost per-item }&\$ 6.00\
\text { Annual consumption}&1,000\
\text { Fixed cost per order placed}&\$ 30.00 \
\text {Carying cost of inventory (as a $ \% $ of dollar value) }&25 \%\
\end{array}$
How many times should the product be reordered each year and what are the related ordering and carrying costs of inventory?
$\text { Reorders } \quad \text { CaryingCosts } \quad \text { OrderingCosts }$
A) 5 $150 $150
B) 3.3 $150 $150
C) 5 $300 $150
D) 3.3 $300 $300

Question

A firm uses an inventory item with the following characteristics. $\begin{array}{lr}
\text {Cost per-item }&\$ 6.00\
\text { Annual consumption}&1,000\
\text { Fixed cost per order placed}&\$ 30.00 \
\text {Carying cost of inventory (as a $ \% $ of dollar value) }&25 \%\
\end{array}$
 How many times should the product be reordered each year and what are the related ordering and carrying costs of inventory?
$\text { Reorders } \quad \text { CaryingCosts } \quad \text { OrderingCosts }$
A) 5 $150 $150
B) 3.3 $150 $150
C) 5 $300 $150
D) 3.3 $300 $300

Quizplus · Accepted Answer

The EOQ is 100 units, so the firm should reorder 10 times per year. The carrying cost is 25% of the average inventory, which is 50 units, so the carrying cost is $150. The ordering cost is $30 per order, so the total ordering cost is $300.

A Firm Uses an Inventory Item with the Following Characteristics