Lopez Chemical Inc. requires 20,000 gallons of material annually; the cost of pl

Question

Lopez Chemical Inc. requires 20,000 gallons of material annually; the cost of placing an order is $20; the annual carrying cost per gallon is $5.

Required:

Determine the EOQ from potential order sizes of 300, 400, 500, 600, 700, and 800 gallons by completing the table below. If required, round answers to the nearest whole number and use that rounded number in subsequent calculations.

Order
Size
Number of
Orders
Total
Order Cost
Average
Inventory Total
Carrying
Cost Total
Order &
C. C. 300 $ $ $ 400 500 600 700 800

Explanation / Answer

EOQ=root of (2AO/C)

A=annual demand

O=Ordering cost

C=Carrying cost

=20000×20×2=80000

=80000/5

=root of 16000

=400 UNITS

NUMBER OF ORDERS PER YEAR

=A/EOQ

=20000/400

=50

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