If a company has an ordering cost of $250,a carrying cost of $4 per unit,and annual product demand of 6,000 units,the total minimum inventory cost is approximately
A)$3,464
B)$3,250
C)$3,944
D)$2,921

Question

Quizplus · Accepted Answer

The total minimum inventory cost can be found using the Economic Order Quantity (EOQ) model formula: EOQ = sqrt((2DS)/H), where D is the demand, S is the ordering cost, and H is the holding or carrying cost per unit. The total cost (TC) is then calculated using TC = (D/Q)*S + (Q/2)*H + PD, where Q is the EOQ, P is the purchase cost per unit (not given and not needed in this case), and the other variables are as previously defined. Substituting the given values (D=6000, S=250, H=4) into the EOQ formula gives EOQ = sqrt((2*6000*250)/4) = sqrt(3000000) = 1732.05 units (approximately). Then, the total cost without purchase cost is TC = (6000/1732.05)*250 + (1732.05/2)*4 = $3,464 approximately, when rounding and calculations are properly done.

If a Company Has an Ordering Cost of $250,a Carrying