Question

Extra Credit - EOQ Problem A. What is the EOQ for a business that sells 5,000 units each year when the cost of placing an order is $5.00 and the cost of carrying costs are $3.50 per order? B. How long will EOQ last and how many orders are placed annually (two calculations)? C. As a result of lower interest rates, management determines that the carrying cost fell from $3.50 to $1.80/unit. What is the new EOQ and annual number of orders? D. For extra credit, graph your EOQ model - showing total: order cost, carry cost, total cost and EOQ point.

Answer 1

→ Economic orded Quantity is the level of inventory which minimises the cost of inventay. → Inventory will be lowest at EoQ EoQ= 2x demand & Cost per ordening holding cost 5 2 x 500 x $3.5 EOQ = 120 ondes. per day = units consumed 5000 units 365 day & the unit 13.69 units number of days that EQ will last for 180 units 13.69 units = 8.76 days Number of orders to be placed annual demand EoQ annually 5000 unb 120 48 orders =

c) Revised caflying cost & $ 1.80 EoQ = 2x demand & ordering cost per unit Caprying cost (or holding cost 2x 5000 x 5 1.8 EOQ = 167 units New orders = Number of 500dunits 167 unit = 30 orders.

D) goraphical gepresentation. holding cost COST Total cost ordering Cost EOQ -Quantity