Question

For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model is 350 units, and the total annual inventory (holding and order) cost is $1050. What is the inventory holding cost per unit per year for this item

Answer 1

Answer: $3 per unit per year

Explanation:

Inventory holding cost per unit for this item is:

= Total Annual inventory carrying cost / Average inventory

Total Annual inventory carrying cost = Total annual inventory / 2

= 1,050 / 2

= $525

Average inventory = EOQ / 2

= 350 / 2

= 175 units

Inventory holding cost per unit = 525 / 175

= $3 per unit