Aproduce distributor uses 774 packing crates a month, which it purchases at a cost of $12 each. the manager has assigned an annual carrying cost of 34 percent of the purchase price per crate. ordering costs are $29. currently the manager orders once a month. how much could the firm save annually in ordering and carrying costs by using the eoq?

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 =    .................1

here D is annual demand and S is ordering cost and H is carrying cost

so put the value we get

Q =

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 =

put here value we get

total annual cost =          

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  =  

put here value we get

total annual cost =          

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

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