Question

Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of $6 per order, and carrying costs of $2.40 per pipe. a. What is the economic ordering quantity? Economic ordering quantity units b. How many orders will be placed during the year? Number of orders orders c. What will the average inventory be? Average inventory units

Answer 1

a

EOQ=((2*annual qty*fixed cost per order)/annual holding cost per unit)^(1/2)

EOQ=((2*72000*6)/2.4)^(1/2)

EOQ = 600

b

Number of orders = Annual Qty/EOQ

No. of orders = 72000/600

No. of orders = 12000

c

Average inventory level = EOQ/2

Average inventory level = 600/2 = 300