Question

Your family's house painting business has decided to try this "EOQ thing" you just learned in SCMS 35 10. So you open the financials and note the following information: Three-year average paint consumption: 1915 gallons per year. You use a small warehouse to hold your equipment and paint. From your cost accounting class, you estimate that your holding cost per gallon of paint is $1.05 per year. Buying the materials needed requires more time than you thought. The part-time person whose only function is to do all of your buying says that she processes 1230 purchase orders per year and her average pay has been $18400 per year. What is the EOQ for paint in gallons? (Your answer should be in whole gallons) Your Answer:

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. Thus EOQ helps in calculating reorder point and optimal reorder quantity to avoid shortage of inventory.

D = 1915 gallons year H = 8 185/galler/year N = 1230 Total ordering D x S 18400 - 1230 xS 5= 18400 1230 = 14.959 or $14.96 order EODE 12x 1915 X 14096 V 105 233 59 or [234 gallons Answer