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Chapter 12

Q. 12.EX.5

COMPUTING COMBINED COST OF ORDERING AND HOLDING. Sharp, Inc. (from Examples 3 and 4) wants to determine the combined annual ordering and holding costs.
APPROACH \blacktriangleright Apply Equation (12-5), using the data in Example 3.

TC = \frac{D}{Q}S + \frac{Q}{2}H                 (12-5)

Step-by-Step

Verified Solution

SOLUTION \blacktriangleright
TC = \frac{D}{Q}S + \frac{Q}{2}H = \frac{1,000}{200}(\$ 10) + \frac{200}{2}(\$ .50) = (5)($ 10) + (100)($ .50) = $50 + $50 = $100

INSIGHT \blacktriangleright These are the annual setup and holding costs. The $100 total does not include the actual cost of goods. Notice that in the EOQ model, holding costs always equal setup (order) costs.

LEARNING EXERCISE \blacktriangleright Find the total annual cost if D = 1,200 units in Example 3. [Answer: $109.54.]
RELATED PROBLEMS \blacktriangleright 12.11, 12.14, 12.15, 12.16 (12.33b,c; 12.35e; 12.36a,b are available in MyOMLab)