The purchase price of an inventory item is $42 per unit. In each three-month period the usage of the item is 2,000 units. The annual holding costs associated with one unit is 5% of its purchase price. The EOQ is 185 units.
What is the cost of placing an order (to 2 decimal places)?
$ O
Let Co = ordering cost
185 = V{[ 2 x Co x (4 x 2,000)] / [0.05 x 42】}
185=V(16,000xCO/2.1)
Co = 1852 x 2.1 / 16,000 = $4.49
Note that the period for demand must be the same as that given for holding cost. As holding cost is given as an annual figure quarterly demand must be converted to annual demand by multiplying by 4.
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