Cheeseburger and Taco Company purchases 14,218 boxes of cheese each year

Business Dec 10, 2020

Cheeseburger and Taco Company purchases 14,218 boxes of cheese each year. It costs $27 to place and ship each order and $4.46 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

What is the annual carrying costs of cheese inventory.

Round the answer to two decimals.

Expert Solution

EOQ = SQRT (2 × Fixed cost per order × Unit demand / Inventory cost)

= SQRT (2 × $27 × 14218 / $4.46)

= SQRT (172,146.19)

= 414.91

Annual carrying costs = Carrying cost × Economic order quantity / 2

= $4.46 × 414.91 / 2

= $925.25

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