The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volumeassemblies, the XOminus−01, has an estimated annual demand of8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. Use the information in the scenario above. What are the annual inventory holding costs if Talbot orders using the EOQ quantity?

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andromache andromache · Answer 1 · 2020-02-14T06:51:02+01:00

Answer:

$2,000

Explanation:

The computation of annual inventory holding costs is shown below:

The economic order quantity is

[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]

[tex]= \sqrt{\frac{2\times 8,000\times \$50}{\text{\$20}}}[/tex]

= 200 units

Now the total annual holding cost is

= Economic order quantity ÷ 2 × holding cost per unit

= 200 units ÷ 2 × $20

= 100 units × $20

= $2,000

Basically we use the above formula to find out the annual inventory holding costs