Question

1. A retailer orders eight products from a single vendor. Assume that the demand for each
product is deterministic, and is given below. The major fixed ordering cost is estimated
to be $8; that is, the cost for the first item on the purchase order is $8. It costs $1 to
add additional products to the purchase order. The carrying charge has been established as
0.30 $/$/year.

Item	Demand (Units/Year)	vi ($/Unit)
1	600	2.50
2	200	12.65
3	350	25.36
4	450	18.52
5	850	62.50
6	900	85.20
7	525	3.65
8	1000	1.98

a. Find the appropriate run quantities for each item.
b. Using Equation 10.5, find a lower bound on the total cost.

Answer 1

The formula for Optimal order quantity (EOQ) is:

Q=(2DS/H)^1/2

where:

Q=EOQ units

D=Demand in units (typically on an annual basis)

S=Order cost (per purchase order)

H=Holding costs (per unit, per year)\begin

Solution a

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Solution b

Using Equation 10.5, find a lower bound on the total cost.

There are multiple ways to find this, please share equation 10.5 which is referred in the question but the equation has not been provided.