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A furniture manufacturer uses 780 gallons of glue per month, which it buys at a price of $10 per gallon Carrying cost per gal

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Answer #1

Answer:

Using the existing method
Total Ordering cost = Number of orders * Ordering cost per order
= 12*28
= $336
Total Holding cost = Average Inventory * Holding cost
= (780/2)*(0.35*10)
= $1365
Total cost = 336 + 1365
= $1701
Using the EOQ
EOQ = Sqroot{(2*Annual Demand*Ordering cost)/(Holding cost)}
= Sqroot{(2*780*12*28)/(0.35*10)}
= 386.99 Units
Total Ordering cost = (780*12/386.99)*28
= $677.23
Total Holding cost = Average Inventory * Holding cost per unit
= (386.99/2)*(0.35*10)
= $677.23
Total cost = $677.23 + $677.23
= $1354.46
Cost savings = $1701 - $1354.46
= $346.54
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