2. unit price = __ per box 3. ordering cost = ____ per box 4. annual holding cos
ID: 344534 • Letter: 2
Question
2. unit price = __ per box
3. ordering cost = ____ per box
4. annual holding cost = ___ per box/yr
B. EOQ Formula
Optimal
Annual
Order
Order+Holding
Quantity Q*
Costs at Q*
PLEASE SHOW WORK!
B. EOQ Formula
Optimal
Annual
Order
Order+Holding
Quantity Q*
Costs at Q*
The situation: Rachel is responsible for purchasing the paper used in all copy machines and laser printers at Budco. After looking at her records, Rachel has found demand for paper averages 600 boxes per month The price of a box of paper is $20 (regardless of the number ordered). Placing and handling an order costs $70. Annual unit holding costs per box are 25% of the unit price. Last year, Rachel ordered paper once every 2 months, but she wants to know if another ordering policy would be cheaperExplanation / Answer
1. Annual demand, D = 600 boxes per month * 12 months = 7200 boxes per year
2. unit price = 20 per box
3. ordering cost, K = 70 per box
4. annual holding cost, H = 20*25% = 5 per box/yr
B. EOQ formula
Optimal Order Quantity, Q* = SQRT(2DK/H) = SQRT(2*7200*70/5) = 449
Annual order + holding cost at Q* = (D/Q*)K + (Q*/2)*H = (7200/449)*70+(449/2)*5 = $ 2245
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