Homework Answers
Total Annual Cost of the Inventory Policy:-
Total Ordering Cost + Total Carrying cost
EOQ = √[(2*Annual Demand*Per Order cost)/Carrying cost per unit]
= √[(2*25000*$50)/$10]
=√[(2500000/10]
=√250000 = 500 units
No of Orders = 25000 units/500 units = 50 units
Total Ordering cost = No of orders * Order cost
= 50 units * $50 = $2500
Total Carrying cost = Average Inventory * Carrying cost
Average Inventory = EOQ/2
= 500 units/2 = 250 units
Total carrying cost = 250 units * $10 = $2500
Total Annual Cost of the Inventory Policy = Total Ordering Cost + Total Carrying cost
= $2500 + $2500 = $5000
Option C is correct
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