Your family\'s house painting business has decided to try this \"EOQ thing\" you
ID: 389264 • Letter: Y
Question
Your family's house painting business has decided to try this "EOQ thing" you just learned in SCMS 3510. So you open the financials and note the following information:
Three-year average paint consumption: 3355 gallons per year
You use a small warehouse to hold your equipment and paint. From your cost accounting class, you estimate that your holding cost per gallon of paint is $0.70 per year.
Buying the materials needed requires more time than you thought. The part-time person whose only function is to do all of your buying says that she processes 2030 purchase orders per year and her average pay has been $15600 per year.
What is the total cost of one order if you order in quantities equal to the EOQ? (Your answer should have two decimal places)
Explanation / Answer
Since one needs to spend $15600 for making 2030 purchase orders ,
ordering cost = Co = $15600/ 2030 = $7.68 ( rounded to 2 decimal places )
Annual Demand for paint = D = 3355 Gallons
Holding cost per Gallon per year = Ch = $ 0.70
Therefore ,
EOQ = square root ( 2 x Co x D/Ch) = square root ( 2 x 7.68 x 3355/0.70) = 271.33 ( rounded to 2 decimal places )
Number of orders in year = annual demand/ EOQ = 3355 / 271.33 = 12.365
Total cost of one order in quantities equal to EOQ
= annual pay of the ordering person/ number of orders
= $15600 / 12.365
= $1261.62
Total cost of one order if order quantity equal to EOQ = $1261.62
Total cost of one order if order quantity equal to EOQ = $1261.62
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