Concept explainers
(a)
Interpretation:
Economic order quantity (EOQ) and total cost
Concept Introduction:
Economic order quantity refers to the number of unit that an organization added to its inventory in order to minimize inventory cost such as order cost, shortage cost and the holding cost.
(a)
Explanation of Solution
Given data, Annual demand =1200
Order cost=$40
Unit cost= $5
Carrying charge rate = 18% = .18
The economic order quantity is calculated by the following formula.
The total order cost is calculated by the following formula.
Purchase cost
Thus, the total cost is
Thus, the total cost is 6294.95
(b)
Interpretation:
Economic order quantity (EOQ) when disposal cost is incorporated into the model.
Concept Introduction:
Economic order quantity refers to the number of the unit that an organization added to its inventory to minimize inventory costs such as order cost, shortage cost, and the holding cost.
(b)
Explanation of Solution
The economic order quantity is calculated by the following formula.
The total order cost is calculated by the following formula.
Purchase cost
Thus, the total cost is
Thus, the total cost is 6294.95
(c)
Interpretation:
The outcome of the above calculation on the sustainability practice.
Concept Introduction:
Economic order quantity refers to the number of the unit that an organization added to its inventory to minimize inventory costs such as order cost, shortage cost, and the holding cost.
(c)
Explanation of Solution
From the part (a) and (b) it can be concluded that the total cost is a little higher. Thus, by adjusting the economic order quantity, an organization can save the additional cost while protecting the environment.
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