What is the annual carrying cost per unit in the EOQ example?

In the Economic Order Quantity (EOQ) model, the annual carrying cost per unit represents the cost associated with holding one unit of inventory over a year. This cost typically includes warehousing expenses, insurance, depreciation, and opportunity costs of capital tied up in inventory.

The annual carrying cost is often expressed as a percentage of the unit cost of the inventory. It is calculated by multiplying the unit cost by the carrying cost rate. If the carrying cost rate is known, and if the unit cost is given, you can take these values to compute the total carrying cost.

Option B, which states the annual carrying cost per unit is $7.50, indicates a reasonable estimation of this cost when aligned with the typical cost structure for businesses managing inventory. Understanding this value is crucial in inventory management as it helps determine the optimal order quantity that minimizes total inventory costs, which include carrying costs along with ordering costs. A balance between these two types of costs is essential for efficient supply chain operations.