Janice wants to get a mortgage for her new vacation condo. She pays $56,000 for the condo and has a 7% interest rate for a 7-yea
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Information Provided:
Yearly Demand (D) = 200,000 × 12 = 2,400,000 units
Ordering Cost (S) = $500 each order
Carrying Cost (H) = 20% of the Unit Price = $10 × 20% = $2
Cost per Unit = $10
Calculations:
1) Optimal Order Quantity =
Optimal Order Quantity =
2)
Annual Holding Expense = (34,641 / 2) × 2
Annual Holding Expense = $34,641
3) Orders Each Year = Yearly Demand / Optimal Order Quantity
Orders Each Year = 2,400,000 / 34,641
Orders Each Year = 69.2820646
Orders Each Year = 69 (Approximately)
4) Yearly Transportation Variable Cost = Cost per Unit × Yearly Demand
Yearly Transportation Variable Cost = $0.10 × 2,400,000
Yearly Transportation Variable Cost = $240,000
5) Yearly Clerical Expense = Orders Each Year × Cost Each Order
Yearly Clerical Expense = 69.282 × $500
Yearly Clerical Expense = $34,641