Minimum cost of ordering and holding inventory, Finance Basics

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Minimum cost of ordering and holding inventory

Assume that Latest Fashionable Clothes Inc. uses 1,440,000 yards of material each year. Further, assume that Latest Fashionable can order the material at a cost of $2 per yard, plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.

i. What is the firm's EOQ?

ii. What is Latest Fashionable Clothes' minimum cost of ordering and holding inventory?

iii. Now, suppose the manufacturer offers a discount of 0.5 percent for orders of a least 40,000 yards. Should Latest Fashionable Clothes increase its ordering quantity to take the discount?

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Finance Basics: Minimum cost of ordering and holding inventory

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Finance Basics: Minimum cost of ordering and holding inventory

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Recent Questions Asked Finance Basics

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