Question

 

A local car wash uses 15 containers of soap during each of the 50 weeks they operate per year. Each container costs $25, setup (ordering) costs are $18 and holding costs for each unit is $2.5 per year. Assume the car wash currently purchases 160 containers per order. What is the total cost before and after using the optimal EOQ quantity (assuming there is no safety stock)? Answer question as (total cost before optimal quantity, total cost with optimal quantity).

Note: Choose the answer that is closest to your results.

 

	($19,010, $18,034)
	None of the above
	($19,010, $18,750)
	($19,034, $19,010)
	($19,034, $18,750)

Answer 1

Answer)

Car wash uses 15 containers of soap for 50 weeks in a year.

That mean demand of soap container is (D) = 15*50 = 750 containers

Cost of each container (C) = $25

Setup cost (S) = $18

Holding Cost (H) = $2.5

Current order by car wash (Q) = 160 containers

thus, EOQ =(2*D*S/H)

                 =(2*750*18/2.5)

                 =(10800) = 103.923 = 104 containers (approx)

Total cost before using EOQ (TC) = C*D + H*Q/2 + S*D/Q

                                                      = (25*750) + (2.5*160/2) + (18*750/160)

                                                      = 18750 + 200 + 84.375

                                                      = 19034.375 = $19034 (approx)

Total cost after using EOQ (TC) = C*D + H*(EOQ)/2 + S*D/(EOQ)

                                                   = (25*750) + (2.5*104/2) + (18*750/104)

                                                   = 18750 + 130 + 129.807

                                                   = 19009.807 = $19010 (approx)

thus option 4rth is correct - ($19,034, $19,010)