Chapter 12, Problem 16P

a)

Summary Introduction

To determine: The total annual cost for different order sizes.

Introduction:

Total cost of inventory:

The total cost involved in ordering and carrying an inventory and the costs associated with the management and handling of associated activities.

b)

Summary Introduction

To calculate: The economic order quantity (EOQ) and to determine the implications of making error in calculating economic order quantity.

Introduction:

Economic order quantity (EOQ):

EOQ is the quantity of units a company must add to its inventory so as to minimize the total inventory costs. It will determine the ideal order quantity which will decrease the inventory management costs.