6-24 Ken Ramsing has been in the lumber business for most of his life. Ken\'s bi

Question

6-24 Ken Ramsing has been in the lumber business for most of his life. Ken's biggest competitor is Pacific Woods. Through many years of experience, Ken knows that the ordering cost for an order of plywood is $25 and that the carrying cost is 25% of the unit cost. Both Ken and Pacific Woods receive plywood in loads that cost $100 per load. Furthermore, Ken and Pacific Woods use the same supplier of ply- wood, and Ken was able to find out that Pacific Woods orders in quantities of 4,000 loads at a time. Ken also knows that 4,000 loads is the EoQ for Pacific Woods. What is the annual demand in loads of plywood for Pacific Woods?

Explanation / Answer

The following data is provided.

Cost per order = $25

Item cost = $100

Holding cost = 25% of $100 = $25

Optimal order quantity = 4,000 loads

Use EOQ to find out the annual demand of loads of plywood for pacific woods.

Economic Order Quantity (EOQ) =

Hence, the annual demand is 8,000,000 loads.

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