Using the fixed-order-quantity model, what is the total ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $40, and a holding cost per unit per year of $45?
Fill in the blank(s) with the appropriate word(s).
$5,692
Using Equation 20.3, Q = Square root [(2 × Demand × Order cost)/Holding cost] = Square root [(2 × 36,000 × 40)/45] = Square root (64,000) = 252.98. Dividing annual demand by Q, 36,000/252.98 = 142.3 orders per year × $40 per order = $5,692 ordering cost per year.
(*Note to instructors: The answer given here is correct. If, however, your student rounds 142.3 orders per year to 142 orders, the answer is $5,680. We are inclined to accept either answer.)
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