Economic Order Quantity; Order Cost; Carrying Cost New England Co. predicts that it will use 360,000 gallons of material during the year. The material is expected to cost $5 per gallon. It anticipates that it will cost $72 to place

Economic Order Quantity; Order Cost; Carrying Cost 

New England Co. predicts that it will use 360,000 gallons of material during the year. The material is expected to cost $5 per gallon. It anticipates that it will cost $72 to place each order. The annual carrying cost is $4 per gallon.

a. Determine the most economical order quantity by using the EOQ formula. 3600   gallons

b. Determine the total cost of ordering and carrying at the EOQ point.

c. You have been given the cost of placing one order. To determine the total order cost, you will first need to use the EOQ calculated in requirement 1 to determine the number of orders that would be placed in a year.

You have also been given the carrying cost per unit of inventory. To determine the total carrying cost, you will first need to use the EOQ calculated in requirement 1 to determine the average number of units in inventory.

Check:
 In this case, because there is no safety stock, the total ordering costs will be equal to the total carrying costs.

 

• Expert Answer

A The economic order quantity EOQ is a company s optimal orde View the full answer