Question

A particular raw material is available to a company at three different prices, depending on the size of the order:

Less than 100 pounds	$	30	per pound
100 pounds to 999 pounds	$	29	per pound
1,000 pounds or more	$	28	per pound

The cost to place an order is $50. Annual demand is 4,300 units. Holding (or carrying) cost is 25 percent of the material price.

What is the economic order quantity to buy each time, and its total cost? (Round your answers to the nearest whole number.)

Answer 1

DEMAND = 4300

ORDERING COST = 50

HOLDING COST % = 25 %

EOQ = SQRT(2 * DEMAND * ORDERING COST / HOLDING COST)

ANNUAL HOLDING COST = ADJUSTED EOQ / 2 * HOLDING COST PER UNIT

ANNUAL ORDERING COST = (ANNUAL DEMAND / ADJUSTED EOQ) * ORDERING COST

ANNUAL MATERIAL COST = ANNUAL DEMAND * OFFERED PRICE PER UNIT

TOTAL COST OF INVENTORY = ANNUAL(HOLDING + ORDERING + MATERIAL)

OPTIMAL ORDER QUANTITY = 1000

ASSOCIATED COST = 124115

NO.	LOWER LIMIT	UPPER LIMIT	PER UNIT PRICE	ADJUSED HOLDING COST	EOQ	ADJUSTED QUANTITY	ANNUAL HOLDING COST	ANNUAL ORDER COST	ANNUAL MATERIAL COST	TOTAL COST OF INVENTORY
1	0	99	30	7.5	239	99	(99 / 2) * 7.5 = 371.25	4300 / 99 * 50 = 2171.72	4300 * 30 = 129000	371.25 + 2171.72 + 129000 = 131543
2	100	999	29	7.25	244	244	(244 / 2) * 7.25 = 884.5	4300 / 244 * 50 = 881.15	4300 * 29 = 124700	884.5 + 881.15 + 124700 = 126466
3	1000	OR MORE	28	7	248	1000	(1000 / 2) * 7 = 3500	4300 / 1000 * 50 = 215	4300 * 28 = 120400	3500 + 215 + 120400 = 124115

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