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Question
Net Steels is a steel manufacturing company. It orders 180 metric tons of raw material per order. It was observed that the company often faces stockout. To tackle this issue, the company incorporated a fixed-quantity system (FQS) and collected the following data.
| Demand | 11,000 metric tons per year |
| Order Cost | $18,000 per order |
| Item Cost | $36,000 per year |
| Inventory-Holding Cost | 20 percent per year |
Using the data, Net Steels determined that the economic order quantity (EOQ) should be 235 metric tons. In this scenario, the annual amount that Net Steels can save by ordering as per the EOQ instead of its conventional order is:
a. less than $45,000.
b. more than $45,000 but less than or equal to $55,000.
c. more than $55,000 but less than or equal to $65,000.
d. more than $65,000.
Answer
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