The Sun Valley Foundry regularly uses 10,000 axles per year. It can purchase axles for $100 each.

Question:

The Sun Valley Foundry regularly uses 10,000 axles per year. It can purchase axles for $100 each. Ordering costs are $10 per order, and the holding costs of items in inventory are 20 percent of cost per year. Prepare an analysis for management that answers the following question:

What are the economic order quantity and annual ordering costs?

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...