A producer uses 800 packing crates a month, which it purchases at a cost of KWD 20 each. The manager has assigned as annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are KWD 28 per order. Currently the manager orders 800 crates once every month.
- Is what the manager currently ordering ideal quantity to order? What is the Economic Ordering Quantity? (10 points)
- How many times will the manager need to order in a month based on EOQ? (5 points)
- How much could the firm save annually in ordering and carrying cost by using EOQ, compared with the cost of what the manager is currently ordering?
Solution:
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