Question

A company wishes to determine the optimal order quantity for its products. The product is sold at a rate of 800 per week. Each order costs $500. On average, the cost of each product is $8 and the holding cost is based on an annual percentage rate of 10% per product. The lead time for order arrival is 1.5 weeks. Respond to parts

Answer 1

Date: 1 1 Paze No. 1 Sol Optimal order quantity can be found b using EOQ formula Economic order quantity - EOQ = V2A0 where A = is the annual - demoned 0 = 0 is ondering cast C = Cis Carrying cost a Her A = 800 x 52 weeks = 41600 500 C = $8 * 0 = 10% = 0.8 Original scenario EOQ = √2x41600 X 500 COQ = 72 11.1 :. The optimal order quantity is 7211.1 por order. for original case rote goes up to 14% C $8Xly%. = 1.12. then If annual percentage A = 41600, 0 = 500 EOQ = V2A C EOQ core - 2x21600 x 500 = 6094.5

BAN SHREE Date: ,, Page No 3 b If ordering cost increases to $650 from soo Sol Given A=41600 (800 por wock & S2 works) 0 = $650 - C = $8 × 10% = 0.8 EOQ for lost t = /2A0 = $x 41600 x 650 = 8221.92 units EOQ for original case it when o is soo is V2A0 - HoxyGoaxsoo = 7211.1 units. 0.8 | Analysis . If the ordering cost increases then to $650 the optimal Erdoring quantity increases to 8221.92 unit from its original 7211.) units. Cain of increase in total cost Total cost for Casc b= Purchase + ordering to conging Cost Cest cesto = 41600x8 + 41600 x 650 + 822 192 x 0.8 - 8211.92 2 = $ 339377.5. Original loto purchase cest was 338568.8 Cor Conclusion: The Total cest has also increased from 3385688 to 339375S if cest the ordering por order ques up to 650

DAN SHREE Date: 11 Page No is manele If demand A = 57200 O= 500 C = 0.8 1100 per wock (110o por woch x 100 per werk soha then 2 wechs) (8 x 10 %) I 6OQ = V 2AC 2 X S7000 x 500 = V 2X 3700 EOQ = 8455.76 1 Analysis: If the domond increase to 1100 unity per week then the to a will be 8455.76 units. The total cost under such scenaric shall be as follows Total Cest = Purchaic Cest t ordening cat & Camping - Cesto = 57200 X8 + 57200 x 500 + 821.55:7 X Of 84 SS. L = $464364.6 The Total cost $464364.6 per annum sholl be