Answer:
$480
Explanation:
a. The computation of the economic order quantity is shown below:
= [tex]\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
= [tex]\sqrt{\frac{2\times \text{240}\times \text{\$24}}{\text{\$20}}}[/tex]
= 24 boxes
The number of orders would be equal to
= Annual demand ÷ economic order quantity
= $240 ÷ 24 boxes
= 10 orders
The average inventory would equal to
= Economic order quantity ÷ 2
= 24 boxes ÷ 2
= 12 boxes
So, The total cost of ordering cost and carrying cost equals to
Ordering cost = Number of orders × ordering cost per order
= 10 orders × $24
= $240
Carrying cost = average inventory × carrying cost per unit
= 12 units × $20
= $240
So, the total would be
= $240 + $240
= $480
