2. A local artisan uses supplies purchased from an overseas supplier. The owner
ID: 340121 • Letter: 2
Question
2. A local artisan uses supplies purchased from an overseas supplier. The owner believes the assumptions of the EOQ model are met reasonably well. Minimization of inventory costs is her objective. Relevant data, from the files of the craft firm, are annual demand (D) 150 units, ordering cost (S) $42 per order, and holding cost (H) S4 per unit per year a. How many should she order at one time? b. How many times per year will she replenish her inventory of this material? c. What will be the total annual inventory costs associated with this material?Explanation / Answer
a)
b) Number of times = Demand/EOQ = 150/56 = 2.678 = 3 times
c) Total annual cost = Ordering cost + holding cost
(Annual demand/EOQ)*ordering cost + (EOQ/2)*Holding cost
Annual Demand 150 Ordering Cost 42 Holding Cost 4 EOQ= ((2*Annual Demand*Cost per order)/Holding cost)^1/2 3150 56.12 = 56 unitsb) Number of times = Demand/EOQ = 150/56 = 2.678 = 3 times
c) Total annual cost = Ordering cost + holding cost
(Annual demand/EOQ)*ordering cost + (EOQ/2)*Holding cost
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