Problem 2 that mostly sells novels. The annual demand for books is 000 units and

Question

Problem 2 that mostly sells novels. The annual demand for books is 000 units and the annual as the ordering cost is 20 per order. Abdulaziz normally orders 250 books. Calculate the Abdulaziz runs an on-line library holding cost is SO.R, where following: a. Maximum inventory level & average inventory b. Total annual cost. c c. Number of orders per year. d. Length of order cycle. If Abdulaziz decided to use the principles of economic order model to improve invent calculate the following: the principles of economic order model to improve inventory management of the library a. Economic order quantity (EOQ) & corresponding total cost b. At what point will Abdulaziz have the holding cost equals to the ordering cost c. If Abdulaziz orders less than the value of the EOQ, which cost component will be hi d. If the a , which cost component will be higher (holding or ordering) r year increased to 650.R, by how much shall the annual demand be to maintain the annual holding cost pe same economical total cost?

Explanation / Answer

a) Avg Inventory Level = Order size/2=250/2=125

Maximum Inventory= Reorder Level+Redorder qty*(Daily demand*lead time)

with order size as 250 ,number of orders=anuual demand/order size=1000/250=4

which means order is made every quarter therefore since lead time for the order to arrive is not known reorder level can not be known which makes the maximum inventory= Reorder size=250

b) Total Cost= Annual demand*ordering Cost/Order Size+(Order size/2)*holding cost=1000*20/250 +(250/2)*5=705

c)orders per year= annual demand/ order size=1000/250=4

d) Length of order cycle- assuming 365 days in the year, order cycle=annual days/number of orders=365/4=91.25

part 2

a) EOQ=sqrt(2*annual demand*ordering cost/holding cost)=sqrt(2*1000*20/5)=89.44

b) at EOQ total ordering cost and total holding cost is equal

c) Ordering cost will be higher at order size below EOQ

d) Total Cost at EOQ= 1000*20/89.44+(89.44/2)*5=447.214

let D be annual demand then

D*20/sqrt(2*D*20/6.5)+sqrt(2*D*20/6.5)/2*6.5=447.214

D=769.23

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