Solution: EOQ

Activity 1- Aside from the handout provided the previous week, enhance your understanding
inventory management techniques /models through research in the internet.

Activity 2: Study the following illustrative problems and answer the assessment.
A. Emil traders, Inc. sells cellphone cases which it buys from a local manufacturer.
Emil Traders sells 24,000 cases evenly throughout the year. The cost of carrying
one unit in inventory for one year is P11.52 and the order cost per order is
P38.40.
Required: a. What is the economic order quantity?
b. How much is the total costs ; carrying cost and ordering cost
if Emil Traders would buy in economic order quantities.
Solution: EOQ = 2(24,000) (38.40) =400 units

11.52
Total cost = total ordering cost + total carrying cost
P2,304 + P2,304
= P4,608
Ordering cost = annual demand (cost per order)= P2,304

Q
Carrying cost = Q carrying cost per unit = P2,304
2
Note that at EOQ ordering cost and carrying cost are equal
Formula: a. ) EOQ = square root of 2 times annual demand times ordering cost
Carrying cost
b. ) number of orders per year= annual demand

EOQ or (just Q)
c. ) carrying cost = Q carrying cost per unit

2
d. ) ordering cost = annual demand ordering cost per order
Q
B. The following information is available for Edgar Corporation’s Material X :
Annual usage 12,600 units
Working days per year 360 days
Normal lead time 20 days
The units of Material X are required evenly throughout the year.
a. What is the reorder point?
b. Assuming that occasionally, the company experiences delay in the
delivery of Material X, such that the lead time reaches a maximum of 30
days, how many units of safety stock should the company maintain and
what is the reorder point?
Solution:
a. Average daily usage = annual demand = 12,600 = 35 units
Working days per year 360
Reorder point (normal)= daily usage x lead time= 35 x 20= 700 units
b. Maximum lead time 30 days

Less normal lead time 20 days
Maximum days of delay 10 days
X average daily usage 35 units
Safety stock 350 units
Average daily usage 35 units

X maximum lead time 30 days
Reorder point 1,050 units
Or
Reorder point= normal lead time usage + safety stock
= 700 + 350 = 1,050 units
C. ABC Classification
Classify the following items using the following criteria
Class A Class B Class C
5-15% of units 30% of units 50-60% of units
70-80% of value 15% of value 5-10% of value
Part Unit cost Annual usage

1 P60 90
2 350 40
3 30 130
4 80 60
5 30 100
6 20 180
7 10 170
8 320 50
9 510 60
10 20 120
Solution:
Part Total % of total value %of total % cummulative

value quantity
9 P30,600 35.9 6.0 6.0
8 16,000 18.7 5.0 11.0 A
2 14,000 16.4 4.0 15.0
1 5,400 6.3 9.0 24.0
4 4,800 5.6 6.0 30.0 B
3 3,900 4.6 10.0 40.0
6 3,600 4.2 18.0 58.0
5 3,000 3.5 13.0 71.0 C
10 2,400 2.8 12.0 83.0
7 1,700 2.0 17.0 100
P85,400
ASSIGNMENT: Answer the requirement of the problem:
1. The material DX is used uniformly throughout the year. The data
about annual requirement, ordering cost and holding cost of this
material is given below:
 Annual requirement: 2,400 units
 Ordering cost: P10 per order
 Holding cost: P 0.30 per unit
Required: a. Determine the economic order quantity (EOQ) of material
b. number of orders per year
c. total cost
d. make the tabular illustration of EOQ by completing the
missing figures in the table.
Number of Number of Average Ordering and Holding Costs

orders units per units in Ordering Holding/ Combined
order inventory cost carrying cost cost
1 2,400 1, 200 P10 P360 P370
2 1,200 600 20 180 200
3
4
5
6
7
8
Activity 1: Read the hand out provided. Research related topic from the internet .
Activity 2: Based in what you have read or searched , list down diversity issues in the
Workplace and the possible ways in which it can be resolved.
ASSESSMENT:
A. Write the term/s being described in each of the following statement:
1. It is giving employees an authority to make decision.
2. These are group of employees who work on problems in their immediate work area.
3. It refers to horizontal movement between two or more jobs according to a plan.

4. An element of job design which refers to physical characteristics and location of a
job.
5. An analysis undertaken in determining worker capabilities and responsibilities for a
job.
6. This is an analysis of how tasks fit together to form a job.
7. The fitting of task to a person in a work environment.
8. Willingness to work hard because that effort satisfies and employee need.
9. A set of tasks, elements, and job motions.
10. Employees working electronically from location they choose.
B. Discuss concisely. (10pts.)

What is considered the most potent resource on an organization? Why?

Solution: EOQ

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Activity 1- Aside from the handout provided the previous week, enhance your understanding

inventory management techniques /models through research in the internet.

Solution: EOQ = 2(24,000) (38.40) =400 units

Ordering cost = annual demand (cost per order)= P2,304

b. ) number of orders per year= annual demand

c. ) carrying cost = Q carrying cost per unit

b. Maximum lead time 30 days

Average daily usage 35 units

Part Unit cost Annual usage

Part Total % of total value %of total % cummulative

Number of Number of Average Ordering and Holding Costs

3. It refers to horizontal movement between two or more jobs according to a plan.

B. Discuss concisely. (10pts.)

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