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Homework answers / question archive / If D = 500,000 units per year, C = 40 percent of acquisition cost per unit per year, S = $59

If D = 500,000 units per year, C = 40 percent of acquisition cost per unit per year, S = $59

Accounting

If D = 500,000 units per year, C = 40 percent of acquisition cost per unit per year, S = $59.50 per order, and ac = $5.50 per unit: 

a) What is the EOQ? 

b) What is the TSC at the EOQ? 

c) How much would the TSC increase if the order quantity must be 6,000 units because of a standard shipping-container size? 

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a) Computation of EOQ:

EOQ = SQRT of ( 2*D*S/C(H))

= SQRT ( 2*500,000* 59.50/0.4*5.5)

= SQRT ( 27045454.55)

EOQ = 5200.52

 

b) Computation of TSC at EOQ:

TSC at EOQ = SQRT ( 2*D*C(O)*C(H))

= SQRT ( 2*500,000*59.5*0.4*5.5)

= SQRT (130,900,000)

TSC at EOQ = 11441.15

 

c) Computation of Increase in TSC  if the order quantity must be 6,000 units because of a standard shipping-container size:

TSC at 6000 units= 500,000/6000*59.5+ 6000/2* 0.4* 5.5

= 4958.33+ 6600

= 11558.33

So,

Increase =  11558.33-11441.15= 117.18