Demand is projected to be 600 units for the first half of the year and 900...

Demand is projected to be 600 units for the first half of the year and 900 units for the second half. The monthly holding cost is $2 per unit, and it costs $55 to process an order. Assuming that monthly demand will be level during each of the six-month periods covered by the forecast (e.g., 100 per month for each of the first six months), determine an order size that will minimize the sum of ordering and carrying costs for each of the six-month periods.

Expert Solution

FOR DEMAND = 600 units,

DEMAND = 600

HOLDING COST = 2 UNITS PER MONTH = 2 * 6 MONTHS = 12 FOR 6 MONTHS

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

EOQ = SQRT(2 * 600 * 55 / 12) = 74.16

FOR DEMAND = 900,

EOQ = SQRT(2 * 900 * 55 / 12) = 90.83

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keosha answered 2 years ago

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