EOQ: An item has the following information: Ordering cost/order, S = $100/order
ID: 2597961 • Letter: E
Question
EOQ:
An item has the following information:
Ordering cost/order, S = $100/order Annual demand, D = 240,000 units/year
Carrying cost/unit-year, H = $0.40/unit-yr Lead time = 9 days
Assume 300 working days in a year.
Determine:
(1) The EOQ.
(2) The ROP.
(3) Number of orders per year.
(4) Number of days between orders.
(5) Ordering cost per year.
(6) Carrying cost per year.
(7) Total cost per year.
(8) Average inventory.
Inventory turnover.
The price/unit if the carrying cost %/year = 40%.
(11) How much is the % increase in the total cost per year if the ordering quantity is (a) 10% less than EOQ, and (b) 10% more than EOQ.
Explanation / Answer
Solution:
1) Economic Order Quantity (EOQ)
Economic Order Quantity = (( 2 x Annual Demand x Ordering Cost per Order )/Carrying Amount per unit per annua)1/2
Here,
Annual Demand = 240,000 Units
Ordering Cost per order = $100
Carrying Cost per unit per annum = $0.40
Economic Order Quantity = = (( 2 x Annual Demand x Ordering Cost per Order )/Carrying Amount per unit per annual)1/2
= ((2 x 240,000 x 100)/0.40)1/2
= 10,954.45 Units
2) ROP (Re-order Order Point)
ROP = Average Daily Consumption x Lead Time
= (240,000 / 300) x 9
= 7,200 Units
3) Number of Orders per year = Annual Demand / Economic Order Quantity = 240,000 / 10,954.45 = 227.6 or 228 Orders
4) Number of Days between orders = Number of days in a year / number of orders in a year = 300 / 227.6 = 1.32 days
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