Answer :
Explanation:
The computation is shown below:
a. The computation of the economic order quantity is as follows:
= [tex]\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
[tex]= \sqrt{\frac{2\times \text{97,200}\times \text{\$4}}{\text{\$1.50}}}[/tex]
= 720 units
b. The number of orders would be equal to
= Annual demand ÷ economic order quantity
= $97,200 ÷ 720 units
= 135 orders
c. The average inventory would equal to
= Economic order quantity ÷ 2
= 720 units ÷ 2
= 360 units
d. The total cost of ordering cost and carrying cost equals to
Ordering cost = Number of orders × ordering cost per order
= 135 orders × $4
= $540
Carrying cost = average inventory × carrying cost per unit
= 360 units × $1.50
= $540