Answer:
c) Total annual logistics cost = $400
Explanation:
The Economic Order Quantity (EOQ) is the order quantity that minimizes the balance of holding cost and ordering cost. At the EOQ, the holding cost is exactly the same as the ordering cost.
It is calculated as follows:
EOQ = (2× Co D)/Ch)^(1/2)
Co- ordering cost Ch - holding cost, D- annual demand
So we apply the formula:
EOQ = (2× 5 × 1600/10)^(1/2
= 40 units
Holding cost
Holding cost = EOQ/2 × Ch
= 40/2 × $10 =$200
Ordering cost
Ordering cost = (Annual demand/EOQ) × Ordering cost per order
= (1600/40)× $5 = $200
Total logistics costs
Total annual logistics cost = Holding cost + Ordering cost
= $200+$200
=$400
