Answer :
Answer:
annual saving = $444.42
Explanation:
given data
monthly demand = 774
purchases cost = $12
annual carrying cost = 34 % of the purchase price
Ordering costs = $29
solution
we know here annual demand will be = 774 × 12 = 9288 crates
and
carrying cost = 34 % of $12 = $4.08
so
economic order quantity Q will be
Q = [tex]\sqrt{\frac{2DS}{H}}[/tex] .................1
here D is annual demand and S is ordering cost and H is carrying cost
so put the value we get
Q = [tex]\sqrt{\frac{2*9288*29}{4.08}}[/tex]
Q = 363.37 = 363 creates
and
total annual cost with EOQ will be
total annual cost = annual carrying cost + annual ordering cost ...............2
total annual cost = [tex]\frac{Q}{2} H + \frac{D}{Q} S[/tex]
put here value we get
total annual cost = [tex]\frac{363}{2} 4.08 + \frac{9288}{363} 29[/tex]
total annual cost = 740.52 + 742.02
total annual cost = $1482.54
so
order quantity = monthly demand = 774 crates
so total annual cost with current policy is
total annual cost is = annual carrying cost + annual ordering cost
total annual cost is = [tex]\frac{Q}{2} H + \frac{D}{Q} S[/tex]
put here value we get
total annual cost = [tex]\frac{774}{2} 4.08 + \frac{9288}{774} 29[/tex]
total annual cost = 1578.96 + 348
total annual cost = $1926.96
so
annual saving = total annual cost with current policy - total annual cost with EOQ
annual saving = $1926.96 - $1482.54
annual saving = $444.42