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EOQ Calculation

The document provides information to calculate the economic order quantity (EOQ) for a tire distributor selling 9,600 tires per year. It gives the annual carrying cost per tire ($16), ordering cost ($75), and number of work days per year (288). The original EOQ is calculated as 300 tires with 32 orders per year and a 9 day order cycle. The document then asks to recalculate the EOQ with higher holding costs and lower ordering costs and interpret the results.

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Justine Williams
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267 views2 pages

EOQ Calculation

The document provides information to calculate the economic order quantity (EOQ) for a tire distributor selling 9,600 tires per year. It gives the annual carrying cost per tire ($16), ordering cost ($75), and number of work days per year (288). The original EOQ is calculated as 300 tires with 32 orders per year and a 9 day order cycle. The document then asks to recalculate the EOQ with higher holding costs and lower ordering costs and interpret the results.

Uploaded by

Justine Williams
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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A local distributor for a national tire company expects to sell approximately 9,600 steel-belted radial

tires of a certain size and tread design next year. Annual carrying cost is $16 per tire, and ordering
cost is $75. The distributor operates 288 days a year.
a. What is the EOQ
b.How many times per year does the store reorder?
c. What is the length of an order cycle?
d. What is the total annual cost if the EOQ quantity is ordered?
D=9,600 tires per year
H=$16 per unit per year
S=$75
a. Qo=√(2DS/H)=√(2(9,600)75/16)=300 tires
b.Number of orders per year: D/Q = (9,600 tires/year)/(300tires/order)=32 orders
c. Length of order cycle: Q/D = (300 tires)/(9,600 tires/years)= 1⁄32 of a year, which is 1⁄32 x 288, or
nine workdays
d. TC = Carrying cost + ordering co
= (Q/2)H = (D/Q)S
= (300/2)16 + (9,600/300)75
= $2,400 + $2,400
= $4,800
Determine the EOQ by increasing significantly the HOLDING COST between ten to twenty times the
amount used by the textbook. Present the formula and results of the new EOQ. You will keep the
original demand (9,600 units) and ordering costs, S ($75) the same
Determine a second EOQ by decreasing the ORDERING COSTS to one tenth (1/10) or lower and
keeping the original demand and holding costs, H ($16) the same.
Determine a third EOQ by increasing the holding cost to the level you selected and decreasing the
ordering cost at the same time based on the last scenario. You keep the demand the same
Study the three scenarios and write a paragraph with your interpretation of results. What is the
meaning, based on current business trends and technology, to have increasing holding costs and
decreasing ordering costs? What is happening to the EOQ?
Submit one file with the three formulas and results and your concluding thoughts. As a reference,
this is an example of a similar analysis done for a different EOQ case.
DATA
Annual Demand (D)= 1000 units per year Ordering
Cost (S)= $5.00 per order
Holding Costs (H)= $1.25 per unit
Q=(2DS/H)^0.5
Q=(2*1000*5/1.25)^0.5
Q= 89.4427191
DATA
Annual Demand (D)= 1000 units per year
Ordering Cost (S)= $1.00 per order
Holding Costs (H)= $6.25 per unit
Q=(2DS/H)^0.5
Q=(2*1000*1/6.25)^0.5
Q= 17.88854382
DATA
Annual Demand(D)= 1000 units per year
Ordering Cost (S)= $0.02 per order
Holding Costs (H)= $62.00 per unit
Q=(2DS/H)^0.5
(2*1000*0.02/62)^0.5
Q= 0.803219329 or one unit which is the equivalent to order when it is needed (JIT

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