An Ag journalism firm always orders 50 cases of paper from their office supply company. They incur an annual holding cost of $15 per case and have an ordering cost of $25 each time they place an order. If their annual demand is 480 cases, how much could they save annually by switching to their economic order quantity? a. $25
b. $40
c. $15
d. $80

a. $25

Explanation:

Annual requirement = 480 units

Number of orders per year = Annual requirement / Order size per order

= 480 / 50

= 9.6

= 10

So, total ordering cost  = Number of orders x ordering Cost per order

= 10 x $25

= $250

Carrying cost of average inventory  = Order size / 2 x Carrying cost per unit per annum

= 50 / 2 x $15

= $375

So, Total cost  = Ordering cost + Carrying cost

= $250 + $375

= $625

Economic Order Quantity  = Square Root of ( 2 x Annual demand x Ordering cost per order / Carrying cost per unit per annum )

= Square Root of ( 2 x 480 x $25 / $15 )

= Square Root of ( 1,600 )  

= 40

Number of orders  = 480 / 40  = 12 orders

So, Ordering cost = 12 x $25  = $300

Carrying cost of average Inventory  = 40 / 2 x $15  = $300

So, Total cost of Inventory = $300 + $300 = $600

So, Cost savings  = $625 - $600  = $25 per annum

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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