# Lou supplier sells High qualit

Lou supplier sells High quality-brand batteries to fishingsupplies. The annual demand is approximately 1,200 batteries. Thesupplier pays \$28 for each battery and estimates that the annualholding cost is 30 percent of the battery’s value. It costsapproximately \$20 to place an order (managerial and clericalcosts). The supplier currently orders 100 batteries per month.

1. Determine the ordering, holding, and total inventory costs forthe current order quantity.
1. Determine the economic order quantity (EOQ).
2. How many orders will be placed per year using the EOQ?
3. Determine the ordering, holding, and total inventory costs forthe EOQ. How has ordering cost changed? Holding cost? Totalinventory cost?

 EOQ Details Current Ordering status Annual usgae =1200 Ordering cost perorder=\$20 Carrying cost per unit peryear=\$28*30%=\$8.4 Current order =100 batteries permonth No of Current Orders =12 So Current Ordering Cost=12*20=\$240 Ans a Average Inventory Holding=100/2=50 So Current Holding Cost=50*8.4=\$420 Ans a Price oer battery =\$28 Annual Purchasecost=1200*28=\$33,600 So Current Total Inventory cost=AnnualPurchase cost+Annual ordering cost +Annual Holdingcost=\$33,600+\$240+\$420=\$34,260 Ans a. Now let us find EOQ EOQ = Sq Root of [(2*Orderingcost*Annual usage)/Carrying cost per unit] = Sq root [(2*20*1200)/8.4]= Sq Rt5714.29 =75.59 a So EOQ is75.59 Ans a. Annual Consumption =1200, So No of orders to be placed=1200/75.59=15.87 Ans b. Annual Ordering cost=15.87*20==\$317.50 Ans c. b Average inventory =EOQ /2=75.59/2=37.8 Annual Inventory Holding cost=37.8*8.4=\$317.50 Annual Purchasecost=1200*28=\$33,600 So Current Total Inventory cost=AnnualPurchase cost+Annual ordering cost +Annual Holdingcost=\$33,600+\$317.5+\$317.5=\$34,235
 Ans c Details Current orderingsystem EOQsystem ChangeDecrease/(Increase) Annual Ordering Cost \$           240.00 \$             317.50 \$         (77.50) Annual Inventory carryingcost \$           420.00 \$             317.50 \$        102.50 Annual Purchase cost \$     33,600.00 \$       33,600.00 \$                 – Total Annual Inventorycost \$     34,260.00 \$       34,235.00 \$           25.00

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