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20 April, 04:16

Our home construction company still buys nails in 15-pound boxes but now we use an average of 4765 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $0.70 per order. Annual carrying costs are $0.5 per bag. What will be their total cost of ordering and carrying the nails?

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  1. 20 April, 05:10
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    =$57.754

    Explanation:

    The question is to determine The Home Construction Company's Total Cost of Ordering and Carrying the nails as follows:

    Known items

    What is the demand or D = 4,765 boxes

    What is the Fixed Ordering Cost = $0.70

    The Carrying Cost = $0.5 per bag

    Therefore the Equilibrum Order Quantity

    = (2FD/C) ∧1/2

    = 2 (0.70x 4,765) =

    =6,671/0.5

    = 13,342∧1/2

    =115.507 or 116 boxes

    Now the total Cost for Ordering and Carrying

    = C (EOQ/2) + F (D/EOQ)

    =$0.5 (58) + $0.70 (4,765/116)

    = 29 + 28.754

    =$57.754
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