Answer:
Explanation:
a. The computation of the economic order quantity is shown below:
= [tex]\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
where,
Carrying cost = $20 × 15% = 3
And, the annual demand = 450 bicycles × 12 months × 2 tyres = 10,800
And, the ordering cost is $50
Now put these values to the above formula
So, the value would equal to
= [tex]\sqrt{\frac{2\times \text{10,800}\times \text{\$50}}{\text{\$3}}}[/tex]
= 600 tires
b. The number of orders would be equal to
= Annual demand ÷ economic order quantity
= $10,800 ÷ 600 tires
= 18 orders
c. The average annual ordering cost would equal to
= Number of orders × ordering cost
= 18 orders × $50
= $900
