Question

Question Set 2. MUSTBE DONE USING EXCEL operation must periodically purchase bulk quantities of bolts. The bolts are purchased in manu boxes of 500 and are consumed at a constant rate. The operation expects to purchase 30,000 boxes over the coming year. Each box costs $150, the annual holding cost per box is $20, and the cost of placing an order is $240 (regardless of the quantity ordered). For the following questions, use the basic economic order quantity model (without quantity discounts). 1. What is the economic order quantity (in boxes)? (2pts) 2. Calculate the annual inventory holding costs based on the average inventory level and annual holding cost per box. (2pts) 3. Calculate the annual inventory ordering costs based on the number of orders expected to be placed during the coming year. (2pts) 4. Create a data table showing the total inventory costs (only) for order quantities varying from 100 to 1050 (use a step size of 50). You must use a data table structure to receive full credit for this problem. If you have any doubt as to what a data table is, please ask your lab TA. (8pts) S. Create a scatter chart (use the one with markers and smooth lines) showing how total inventory costs are a function of the order quantity. Be sure to label your axes appropriately. (6pts)

Answer 1

SOLUTION

1) EOQ = Sqrt ( 2 x A x O / C)

Where,

A = Annual demand = 30,000, O = Ordering cost per order = $240, C = holding cost per unit per annum = $20

So, EOQ = Sqrt( 2 x 30,000 x 240 / 20) = 720 or 720 units.

2) Annual inventory holding cost of average eoq inventory = ( 0 + 720) / 2 x $20 = $7200.00

Annual holding cost per box = $7200/ 720 = $10.00

3) Annual ordering costs = (A / EOQ) x Ordering cost per order = (7200 / 720) x $100 = $10000.