Money in your pocket Suppose that on average, you spend $200 per week at a const

Question

Money in your pocket Suppose that on average, you spend $200 per week at a constant rate over the week. You only have a saving account and pay all your bills in cash. The only opportunity you have to get to the bank is at your lunch hour. You estimate the inconvenience of running the errand at $5 per trip. By taking money from your saving account you forgo interest rate 3% per week. How often should you go to bank? How much money should you get each time? Demand rate Fixed ordering cost Unit holding cost EoO

Explanation / Answer

Demand rate (D) = 200 per week or 200*52 = 10400 per year

Ordering cost (S) = 5 per trip

Unit Holding cost (H) = 3%*Price per unit = 1*3% = 0.03 $ per unit

EOQ = sqrt(2*D*S/H) = sqrt(2*10400*5/0.03) = 1862$

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