Homework Answers
Question: Custom Computers, Inc. assembles custom home computer systems. The fan assemblies needed are bought for $24 each. Annual demand is 7500 fan assemblies, the annual inventory holding cost rate is $4 per unit, and the cost to place an order is estimated to be $60.
Answer:
**Please note: Rounded EOQ is taken for entire calculations. Refer accordingly.
Given that:
Annual Demand(D) = 7500
Order Cost (S) = 60
Holding Cost (H) = 4
Economic Order Quantity EOQ is given by:
EOQ = Sqrt(2 x D x S / H)
Therefore:
EOQ = Sqrt(2 x 7500 x 60 / 4)
EOQ = Sqrt(225000)
EOQ = 474.34 = 474
a. Average inventory level:
Average Inventory (AI) is given by:
AI = EOQ / 2
Therefore:
AI = 474 / 2
AI = 237
b. The number of orders placed per year
Number of orders placed per year is given by:
Number of ordersplaced per year = D / EOQ
Therefore:
Number of orders placed per year = 7500 / 474
Number of orders placed per year = 16
c. The total annual inventory holding cost
Total annual holding cost (THS) is given by:
THC = (EOQ / 2) x H
Therefore:
THC = (474 / 2) x 4
THC = 948
d. The total annual ordering cost:
Total annual ordering cost (TOC) is given by:
TOC = (D / EOQ) x S
Therefore:
TOC = (7500 / 474) x 60
TOC = 949.367089 = 949.37
e. The total annual cost:
The total annual cost (TC) is given by:
TC = THC + TOC
Therefore:
TC = 948 + 949.37
TC = 1897.37
**Please note: Rounded EOQ is taken for entire calculations. Refer accordingly.
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