Our home construction company still buys nails in 15-pound boxes but now we use an average of 3580 boxes a year. Preparing an order and receiving a shipment of nails involves a cost of $0.85 per order. Annual carrying costs are $1.1 per bag.
What will be their total cost of ordering and carrying the nails? (Include the pennies in your answer)
Expert Answer
Annual demand(D) = 3580 boxes
Ordering cost (S) = $0.85
Carrying cost (H) = $1.1
Economic order quantity (Q) = sqrt of (2DS /H)
= sqrt of [(2 x 3580 x 0.85) / 1.1]
= 74.38 or rounded to 74 boxes
Total
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