A produce distributor uses 800 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month. How much could the firm save annually in ordering and carrying costs by using the EOQ?
Expert Answer
Monthly demand = 800 crates
Annual demand (D) = 800 x 12 months = 9600 crates
Ordering cost (S) = $28
Holding cost (H) = 35% of price = 35% of $10 = $3.5
Economic order quantity(Q*) = sqrt
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