Central University has a demand level of 80 units per day, for a particular toner cartridge in the student computer labs each year. The cost of each unit is 10.95. The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22%. Operating days are 250. The lead time is for orders to arrive is four days.

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Business

Warren Mercer

22 October, 06:02

Central University has a demand level of 80 units per day, for a particular toner cartridge in the student computer labs each year. The cost of each unit is 10.95. The purchasing director of the university estimates the ordering cost at $45 and thinks that the university can hold this type of inventory at an annual storage cost of 22%. Operating days are 250. The lead time is for orders to arrive is four days.

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Answers (1)

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Xander Payne · Answer 1

Annual demand (D) = 80 units x 250 days = 20,000 units

Ordering cost per order (Co) = $45

Holding cost (H) = 22% x $10.95 = $2.409

EOQ = √ 2 x 20,000 x $45

$2.409

EOQ = 747 units

Explanation:

EOQ is the square root of 2 multiplied by annual demand multiplied by ordering cost per order divided by holding cost per item per annum. Holding cost is 22% of the unit cost (22% x $10.95).