Vision Company sells optical equipment. Blitz Company manufactures special glass

Question

Vision Company sells optical equipment. Blitz Company manufactures special glass lenses. Vision orders 11,400 lenses per year, 200 per week, at $35 per lens. Blitz covers all shipping costs. Vision earns 25% on its cash investments. The purchase-order lead time is 2.5 weeks. Vision sells 225 lenses per week. The following data are available:

Relevant ordering costs per purchase order $41.25

Relevant insurance, materials handling, breakage,

and so on, per year $ 4.50

What is the economic order quantity for Vision?

Explanation / Answer

Vision Company

Determination of the economic order quantity for Vision:

Economic Order Quantity (EOQ) = square root of [(2 x D x S)/H]

D – Annual demand = 11,400 lenses

S – ordering cost per purchase order = $41.25

H – carrying cost = (25% x $35 + $4.50) = $13.25

EOQ = square root of [(2 x 11,400 x 41.25)/13.25]

EOQ = 266 lenses

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.