Question

Question 1:

Consider the Coke example. Your family consumes Coke at a stable rate of 5 cans/day. The cost of each of your shopping trips is $2. The cost of holding one can of Coke in your house is $0.24/can/month. How many cans of Coke should you buy on each time to minimize the cost of inventory of Coke? (Consider 30 days in a month)

a. 150 cans

d. None of the above

c. 50 cans

b. 10 cans

Question 2 :

Consider the Coke example again. If you decide to order 50 cans of Coke each time, what would be the total holding cost of Coke per month? (Consider 30 days in a month)

d. None of the above

b. $12

a. $6

c. $24

Answer 1

1. c. 50

EOQ = sqroot{(2*monthly Demand * Ordering Cost)/(Holding cost per unit)}

= Sqroot{(2*5*30*2)/(0.24)}

= 50

2. a. $6

Total Holding cost = Average Inventory * Holding cost per unit

= (50/2)*0.24

= $6