Answer:
$112,800
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]
where,
Annual demand equal to
= 200 × 12 months
= 2,400 tires
= [tex]\sqrt{\frac{2\times 2,400\times \$200}{\text{\$24}}}[/tex]
= 200 units
Now The number of orders would be equal to
= Annual demand ÷ economic order quantity
= $2,400 ÷ 200 units
= 12 orders
Ordering cost = Number of orders × ordering cost per order
= 12 orders × $200
= $2,400
And, The average inventory would equal to
= Economic order quantity ÷ 2
= 200 units ÷ 2
= 100 units
And, Carrying cost = average inventory × carrying cost per unit
= 100 units × $24
= $2,400
And, the purchase cost is
= Purchase price × Annual demand
= $45 × 2,400 units
= $108,000
Now
Total annual inventory cost = Ordering cost + Carrying cost + Purchase cost
= $2,400 + $2,400 + $108,000
= $112,800
