EOQ Betty\'s bakery shop LLC orders a special ingredient from a remote supplier

Question

EOQ Betty's bakery shop LLC orders a special ingredient from a remote supplier The demand rate for ingredient is 24,000 boxes per month The cost to place orders is $25 dollars for labor and $20 per order The yearly holding cost for the ingredient is $55 per box The average lead time for the ingredient to be delivered is 12 days 1 What is the Economic order quantity? 2 What is the annual holding cost for the company? 3 What is the annual set up cost for the company? 4 What is the reorder point for Betty? Please show calculation for each

Explanation / Answer

EOQ = SQRT(2 × Quantity × Cost Per Order / Carrying Cost Per unit per year) EOQ Qty A 288000 Cost Per Order B 45 Carrying cost per unit per annum C 55 EOQ=SQRT(2X(288000)*45/55) D                          686 (optimal order Amount Average Inventory=686/2 D/2                          343 year Carrying Cost E=D/2*C                    18,879 No fo orders F=A/C                          420 Total year cost of the order G=F*B                    18,879 Total year cost H=E+G                    37,757 Reorder point=Lead Time Demand+ Safty Stock 12 Assumed Safty stock=0 Daily demand=288000/365 I=A/365                          789 Reorder point I*12                9,468.49

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