A large bakery buys flour in 35 pound bags and uses an average of 1,315 per quarter. Preparing an order and receiving a shipment of flour involves a cost of $11/order. Annual carrying costs are $85/bag. Determine the economic order quantity, average number of bags on hand, the number of orders in a year, the total combined costs of ordering and carrying flour. Also, if ordering costs were increased by $2/order, how would this affect the total annual cost?
Expert Answer
Quarterly demand = 1315 bags
Annual demand (D) = Quarterly demand x 4
= 1315 x 4
= 5260 bags
Ordering cost
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