Question

1. A. (EOQ) Calculate the EOQ quantity given:

a. Fixed cost per order of $40

b. holding cost per inventory unit of $2.00

c. estimated demand for inventory of 200,000

Solve EOQ using the information listed above:

                                                                 

B. Calculate the total cost associated the EOQ amount calculated in part A:

C. The company wants to keep Safety Stock of an additional; 8 units. Calculate the cost associated with the safety stock and the total cost of the EOQ amount with safety stock.

Cost of Safety stock:

Total cost with safety stock included:

D. It takes 2 days to get a delivery. Calculate the Reorder point when another order for the EOQ amount should be placed:

Answer 1

A. Economic Order Quantity ( EOQ ) =

Where :

D = total inventory units demanded over a planning period

P = fixed cost per purchase order

C = carrying or holding cost per inventory unit over the planning period

EOQ =

=

=

= 2828 Units

B. Total Cost = Annual Ordering Cost + Annual Holding Cost

= ( 40 * 200000) + ( 2 * 200000)

= 8000000+400000

= 8400000

C. Cost of safety stock = Ordering cost of safety stock + holding cost of safety stock

  = ( 40*8) + (2*8)

= 320 + 16

= 336

Total cost with safety stock = (40 * 200008) + ( 2 * 200008)

= 8000320+400016

= 8400336

D. Reorder point = (Usage rate * Lead time) + safety stock

  = ( 200000/365*2) + 8

= 1095.8 + 8

= 1103.8 that is , 1104 units

Here lead time is considered as 2 days over 365 days ( days in an year ) as delivery time over how many days is not given.

Therefore at 1104 units we want to place next order.