The Trektronics store begins each week with 400 phasers in stock. This stock is

Question

The Trektronics store begins each week with 400 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $35 per year and the fixed order cost is $75.

What is the economic order quantity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The Trektronics store begins each week with 400 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $35 per year and the fixed order cost is $75.

Explanation / Answer

Current carrying cost = no. of phasers per week*yearly carrying cost of 1 phaser/2 = 400*35/2 = 7000

Restocking cost = fixed order cost*number of weeks = 45*52=2340

EOQ = (2*total demand*ordering cost per order/yearly holding cost per unit)^(1/2)

         = (2*400*12*45/35)^1/2

         = 111.098

Company should decrease order size as EOQ is lesser than 400

Number of orders per year = total demand for the year/EOQ = 400*12/ 111.098

                                                 = 43.20

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