Discount-Mart, a major East Coast retailer, wants to determine the economic orde
ID: 377645 • Letter: D
Question
Discount-Mart, a major East Coast retailer, wants to determine the economic order quantity for its halogen lamps. It currently buys all halogen lamps from Specialty Lighting Manufacturers, in Atlanta. Annual demand is 2,800
lamps, ordering cost per order is $45,carrying cost per lamp is $12.
A) What is the EOQ? ___ lamps per order (round your response to the nearest whole number).
b) What are the total annual costs of holding and ordering (managing) this inventory?
c) How many orders should Discount-Mart place with Specialty Lighting per year?
Explanation / Answer
Annual demand (D) = 2800 lamps
Ordering cost (S) = $45
Carrying cost (H) = $12
a) Economic order quantity(Q) = sqrt of (2DS /H)
= sqrt of [(2 x 2800 x 45) / 12]
= sqrt of 21000
= 144.9 or rounded to 145 lamps
b) Annual Ordering cost = (D /Q) S = (2800/145)45 = $868.97
Annual holding cost = (Q /2)H = (145/2)12 = $870
Total cost = Ordering cost + Holding cost = $868.97 + $870 = $1738.97
C) Number of orders per year = D /Q = 2800/145 = 19.31
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