Question

A company GPro, uses EOQ logic to determine the order quantity for its various components and is planning its orders.

The Annual consumption is 80,000 units, Cost to place one order is 1,200 dollars, Cost per unit is 50 dollars and carrying cost is 6% of Unit cost.

Calculate:

- EOQ

- Number of orders per year

- The ordering cost

- The carrying cost

- Total Inventory cost

Answer 1

annual consumption = 80000 holding cost = carrying cost * cost per unit = 3*50 =150

cost to place one order = $1200

cost per unit = $50

carrying cost = 6% of $50 = $3

EOQ= (2*cost to place one order*demand/holding cost)^2

=(2*1200*80000/150)^2

=1131.37

no of orders per year= D/EOQ

=80,000/1131.37=70.71

Ordering cost= no of orders per year* cost to place one order= 70.71*1200 =$84852

total inventory cost= holding cost + ordering cost = 150(70.71)+84852

=$95458.5