Question

Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.00 per unit Order cost = $100 per order 

a) What is the EOQ for this product?

b) In addition, assume a 300-day work year, how many orders should be processed per year? 

c) What is the expected time between orders?

Answer 1

a.

We have been given the following values:                   

Demand = 360 carrying cost = 100$                                               

Holding cost = 1$ In order to find the economic order quantity, we will use the following formula:                                                      

EOQ = sqrt (2 * D * S / H), where D = demand, S = carrying cost, H = holding cost

EOQ = sqrt(2 * 360 * 100 / 1)

268.329

b.

We have been given the following values:

Demand = 360 Order quantity = 268.329                                           

In order to calculate the required output, we would be utilizing the following formula: Expected number of orders = demand / order quantity                

N = 360 / 268.329                                                  

N = 1.34

c.

We have been given the following values:                           

Number of working days = 300

Expected number of orders = 1.34                                   

In order to calculate the required output, we would be utilizing the following formula:

Expected time = (number of working days) / (expected number of orders)                                                                

Expected time = 300 / 1.34 Expected time = 223.88