Homework Answers
Assume Optimum amount of cash to replenish=X
Average Cash available =X/2
Annual Outflow =$250*182=$45,500
Number of replenishment in a year =45500/X
A.Total cost of replenishment=(45500/X)*$30
B. Cost of carrying Cash =(X/2)*7.5%=(X/2)*0.075
For Economic Quantity of carrying Cash,
A=B
(45500/X)*30=(X/2)*0.075
(45500/X)=(X/2)*(0.075/30)=(X/2)*0.0025=X*0.00125
X^2=45500/0.00125=36,400,000
X=(36,400,000)^(1/2)=$6033
a.Optimum amount to be replaced =$6033
Optimum average quantity carried =6033/2=$3017
b.Number of days of cash =6033/250=24 days
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