Principles of Cost Accounting: E2-2 New England Co

Principles of Cost Accounting

E2-2 Economic Order Quantity; Order Cost; Carrying Cost
New England Co., predicts that it will use 360,000 gallons of material during the year. The material is expected to cost $5 per gallon. It anticipates that it will cost $72 to place each order. The annual carrying cost is $4 per gallon.

Required:
a. Determine the most economical order quantity by using the EOQ formula.
b. Determine the total cost of ordering and carrying at the EOQ point.
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