Given:
Annual Demand(D) = 200,000 × 12 = 2,400,000 units
Cost per order(S) = $500 per order
Holding cost(H) = 20% of Unit cost = $10 × 20% = $2
Unit cost =$10
Computation:
1) Optimal Order size = [tex]\sqrt{\frac{2DS}{H} }[/tex]
Optimal Order Size= [tex]\sqrt{\frac{2\times 2,400,000\times 500}{2} }[/tex]
[tex]Optimal\ Order\ Size = 34,641 Units (Approx)[/tex]
2) [tex]Annual\ holding\ cost = (Optimal\ Order\ Size / 2) \times Holding\ Cost[/tex]
Annual holding cost = (34,641 / 2) × 2
Annual holding cost = $34,641
3) Number of Order per year = Annual demand / Optimal Order Quantity
Number of Order per year = 2,400,000 / 34,641
Number of Order per year = 69.2820646
Number of Order per year = 69 order (Approx)
4) Annual variable transportation cost = Transportation per unit × Annual Demand
Annual variable transportation cost = $0.10 × 2,400,000
Annual variable transportation cost = $240,000
5) Annual Clerical Cost = Number of Order per year × Cost per Order
Annual Clerical Cost = 69.282 × $500
Annual Clerical Cost = $34,641