Question
Asked Oct 31, 2019
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Item X is a standard item stocked in a company's inventory of component parts. Each year the firm, on a random basis, uses about 2,400 of item X, which costs $25 each. Storage costs, which include insurance and cost of capital, amount to $4 per unit of average inventory. Every time an order is placed for more item X, it costs $18. Calculate the order quantity and the annual ordering cost for item X.

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Expert Answer

Step 1

Annual demand (D) = 2400 items

item cost = $25

Storage cost (H) = $4 per unit

Ordering cost (S) = $18

Hence the economic order quantity ...

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