4. a company makes bicycles. it produces 450 bicycles a month. it buys the tires for bicycles from a supplier at a cost of $20 per tire. the company’s inventory carrying cost is estimated to be 15% of cost and the ordering is $50 per order. calculate the economic order quantity (eoq). then from this solution, also calculate the number of orders per year, and average annual ordering cost.

Explanation:

a. The computation of the economic order quantity is shown below:

=

where,

Carrying cost = $20 × 15% = 3

And, the annual demand = 450 bicycles ×  12 months × 2 tyres = 10,800

And, the ordering cost is $50

Now put these values to the above formula  

So, the value would equal to

=

= 600 tires

b. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= $10,800 ÷ 600 tires

= 18 orders

c. The average  annual ordering cost would equal to

= Number of orders × ordering cost

= 18 orders × $50

= $900

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b is the correct answer