supplier may take 7 days. Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an opportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450. If ABC would continue its current inventory manageme
ABC Corporation resells one type of candle. It has 250 working days. Each day, it sells an average of 500 boxes but may
sometimes sell a maximum of 600 boxes. The supplier takes an average of 5 days to deliver the order. During busier times, the
supplier may take 7 days.
Based on ABC’s records, ordering cost average P400 per order. Storage cost per box average P5 per year. There is also an
opportunity cost of 1% per year for every peso invested in inventories. Each box of candles costs P450.
If ABC would continue its current inventory management policy, it would keep 10,000 boxes as safety stock and order ten-
days-worth of inventory.
1. How much would the ordering cost for the year be on average if the economic order quantity was followed?
2. What would the average number of boxes be if the economic order quantity was used (excluding safety stock)?
Round off to two decimal places.
3. How much would the carrying cost for the year if the economic order quantity was followed (excluding safety
stock)?
4. How much would the total inventory related (ordering plus carrying) costs be if the economic order quantity was
followed (excluding safety stock)?
12 to 17. Computed for the inventory-related cost if the entity purchased 500 boxes more and less than the EOQ.
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