Creative Containers Ltd. is looking at ways to reduce its inventory costs. Last year with...
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Creative Containers Ltd. is looking at ways to reduce its inventory costs. Last year with sales of $60,000, total inventory costs amounted to $1,000. The company sells its containers for $100 each. The manager has come to you for advice as he has heard that the companys total inventory costs could be reduced with the implementation of the economic ordering quantity model. The companys inventory cost are as follows:
Total ordering cost $100 per order
Material handling cost $1.50 per unit
Warehouse space $2.50 per unit
Insurance $1.00 per unit
Required: Calculate the total inventory cost using the EOQ model and advise the manager whether or not it would be beneficial to change to this method of inventory management. (10 marks)
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