Question

Amco International is a fictional importer of handcrafted leather and reptile skin handbags from India. The Indian company that sells these handbags will ship these handbags only in order sizes of 300 units. The cost of placing an order from this Indian company is US$2,160. The annual demand for these handcrafted bags is 25,000 units. Determine the holding cost per unit that Amco needs to achieve to minimize its total cost. H $ Number per unit

Answer 1

Economic order quantity (Q) = 300 units

Ordering cost (S) = $2160

Annual demand (D) = 25000

Suppose the holding cost per unit = H

Q = √(2DS/H)

=> 300 = √[(2 × 25000 × 2160) / H]

=> Square of 300 = (2 × 25000 × 2160) / H

=> 90000 = 108000000/H

=> H = 108000000/90000

=> H = 1200

So holding cost(H) = $1200 per unit