The weekly requirement of a part is 580 units. The order cost is $95 per order.
ID: 444093 • Letter: T
Question
The weekly requirement of a part is 580 units. The order cost is $95 per order. The holding cost is $5 per unit per year, and the part cost is $950 per unit. The firm operates fifty-two weeks per year.
Calculate the following - Economic order quantity, annual holding cost, annual order cost and the annual inventory holding cost.
Suppose the firm is currently ordering once every four weeks (i.e., orders what is needed to meet the demand over next four weeks at a time). How much can the company save per year by using economic order quantity instead?
Explanation / Answer
EOQ= square root of 2AO/C
annual usage= 580*52= 30160 units
O is oredering cost= $95 and carrying cost $5 per unit
square root of 2*30160*95/5= square root of 1,146,080= 1070 units per order
annual order cost= 30160/1070= 28 orders
ordering cost= 28*95= $2680
inventory holding cost is 1070*5= $5350
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.