Our home construction company still buys nails in 15-pound boxes but now we use an average of 3495 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $0.55 per order. Annual carrying costs are $0.4 per bag
What will be their total cost of ordering and carrying the nails?
Expert Answer
Annual demand (D) = 3495 boxes
Ordering cost (S) = $0.55 per order
Carrying cost (H) = $0.4 per box
Economic order quantity (Q) = sqrt of (2DS /H)
= sqrt of [(2 x 3495 x 0.55) / 0.4]
= 98 boxes
Total annual cost = Ordering cost
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