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12. Big Chief Tablet Company expects annual sales of 600,000 electronic tablets, an order cost of $12 per order and a carryin

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Answer #1
Answer a
The Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management.
The formula to calculate EOQ is as under,
EOQ = SQRT(2 × annual demand in units × Cost Per Order / Carrying Cost Per unit)
Annual demand in units = 600000 tablets
Cost per order = $12
Carrying cost per unit = $1.50
EOQ = SQRT(2 × 600000 × $12 / $1.50)
EOQ = 3098.39 units
Economic order quantity (EOQ) = 3098 tablets
Answer b
Number orders placed during the year = Annual demand / EOQ
Number orders placed during the year = 600000 tablets / 3098 tablets = 194 orders
Answer c
Average inventory level = [0 units + 3098 units]/2 = 1549 units
Answer d
Annual total cost of ordering and carrying inventory = Total Ordering cost + Total carrying cost
Total ordering cost = Number of orders placed x Cost per order = 194 orders x $12 per order = $2328
Total Carrying cost = Average inventory x carrying cost per unit = 1549 units x $1.50 = $2323.50
Annual total cost of ordering and carrying inventory = $2328 + $2323.50 = $4651.50
Answer f
New average inventory level = Safety stock + (EOQ/2] = 5000 units + 1549 units = 6549 units
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