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The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its...

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $10 per year. The company operates 250 days per year.


What is the total annual holding and ordering cost if Talbot orders using the Economic Order Quantity (EOQ)?

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Answer #1

EOQ= (2*D*S/H)0.5

EOQ= (2*8000*50/10)0.5

EOQ=282.84

total annual holding and ordering cost =(D/Q)*S+(Q*H)/2

total annual holding and ordering cost =(8000/282.54)*5 + (282.84*10)/2 =$1555.77

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