Question

Wood County Hospital consumes 1,000 boxes of bandages per week. The price of the bandages is $35 per box, and the hospital operates 52 weeks per year. The cost of processing an order is $15, and the cost of holding one box for a hear is 15 % of the value of the material. a ) The hospital orders bandages in lot sizes of 900 boxes. What extra cost does the hospital incur, which it could save by using the EOQ method?

Answer 1

Answer:The extra cost is$ 0.72

Explanation:

Using the formula √2DCO/CC

Where CO = ordering cost per order

D = Demand per annum

CC = carrying cost or holding cost per annum

Demand = 1000*52 = 52,000 per annum

ordering cost = $15 per order

Holding Cost = 15/100*52,000 = 7,800 per annum

√2DCO/CC

√2*15*52,000/7,800

√1,560,000/7,800

√200

= $14.14

Extra Cost wiil be

900*52 = 46,800 per annum

√2*15* 46,800/7,800

√1,404,000/7,800

√180

13.42

Therefore the extra cost is

14.14 - 13.42

= $0.72