Rudd Company Uses 40,000 Micro-Chips Each Year in Its Production

Essay

Rudd Company uses 40,000 micro-chips each year in its production of digital cameras. The cost of placing an order is $75. The cost of holding one unit of inventory for one year is $8. Currently Rudd places 20 orders of 2,000 units per order.
Required:
A. Compute the annual ordering cost.
B. Compute the annual carrying cost.
C. Compute the total cost of Rudd's current inventory policy.
D. Compute the economic order quantity.
E. Compute the order cost and the carrying cost for the EOQ.
F. How much money does using the EOQ policy save the company over the policy of purchasing 2,000 micro-chips per order?