Power Pumps produces a variety of commercial sump pumps. One of their models—Mighty Mo—is produced in...
Power Pumps produces a variety of commercial sump pumps. One of their models—Mighty Mo—is produced in a small plant in Missouri. Next year, Power Pumps anticipates on selling 2,000 units of the Mighty Mo. Each requires six rotors, which Power Pumps purchases from an overseas supplier. For the rotors, the cost of placing an order to this supplier is $250 while the unit cost of the rotor is $60. The holding cost for each rotor is 10% of purchasing price.
How many times per year would Power Pumps have to place an order for its rotors?
A. 4
B. 12
C. 15
D. 30
Homework Answers
We have to calculate optimal order quantity first and then divide by the demand for the year to calculate the number of times power pumps have to place the order for rotors.
D = demand for year = 2000 units.
H = holding cost = 10% of purchasing price = $6
O = ordering cost = $250
EOQ= square root of { 2DO/H} = square root [ 2*2000*250/6]
EOQ = 408.25
Number of orders in an year = 2000/408.25 = 4.9 ~ 4
We truncated 4.9 to 4.
Answer is 4 OPTION A.
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