a) EOQ= (2xDXS)/H Where H= Holding cost D= Annual Demand S= Cost per order D= An
ID: 372740 • Letter: A
Question
a)
EOQ= (2xDXS)/H
Where
H= Holding cost
D= Annual Demand
S= Cost per order
D= Annual Demand= 900x12 = 10800
EOQ= (2xDXS)/H = (2*10800*10)/(0.3*0.2)=1897.36
c) No. of orders to be placed = 10800/1897.36=5.69
b) Daily demand= 900/30=30
Reorder point = Daily demand*Lead time= 30*7=210
d)
Total annual cost = Annual Holding cost + Annual ordering cost
Annual holding cost is (EOQ/2) x H = (1897.36/2)x(0.3x0.2) = 56.92
Annual Ordering cost = No. of orders x order cost per order = 5.69x10=56.9
So,Total annual cost = 56.92+56.90=113.82
E)
Annual holding cost is (Q/2) x H = (600/2)x(0.3x0.2) = 27
Annual Ordering cost = No. of orders x order cost per order = (10800/600)x10=180
Total Cost = 27+180=207
Total savings by adopting EOQ model= 207-113.82=93.18
Explanation / Answer
2. MamaMia’s Pizza purchases its pizza delivery boxes from a printing supplier. MamaMia’s delivers on-average 900 pizzas each month (assume deterministic demand). Boxes cost 30 cents each, and each order costs $10 to process. Because of limited storage space, the manager wants to charge inventory holding at 20 percent of the cost. The lead time is 7 days, and the restaurant is open 360 days per year, assuming 30 days per month. [15 points]
a. Determine the economic order quantity
b. What is the reorder point? (assume no safety stock is required)
c. How many orders should be placed per year?
d. What is the total annual cost?
e. If MamaMia’s current order quantity is 600 boxes. How much can be saved by adopting an EOQ versus their current Q = 600?
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