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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 = $59.50 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?
Expert Solution
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
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