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EOQ Problems

Jin, an automobile manufacturer, uses 60,000 pairs of bumpers per year from a supplier at a steady rate. It costs $3 per month to store a pair and $25 for each order. The EOQ is 289 pairs and total annual inventory cost is $10,392. Erna's mail-order business demands 16,000 RebFlexers annually at a $2.50 storage cost and $50 order cost. The EOQ is 800 units and total cost is $2,000. Knight Cervantes' chocolate shop demands 2,500 chocolate-covered cherries. The EOQ is 548 units, expected orders are 5, and total annual inventory cost is $410.79

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96 views6 pages

EOQ Problems

Jin, an automobile manufacturer, uses 60,000 pairs of bumpers per year from a supplier at a steady rate. It costs $3 per month to store a pair and $25 for each order. The EOQ is 289 pairs and total annual inventory cost is $10,392. Erna's mail-order business demands 16,000 RebFlexers annually at a $2.50 storage cost and $50 order cost. The EOQ is 800 units and total cost is $2,000. Knight Cervantes' chocolate shop demands 2,500 chocolate-covered cherries. The EOQ is 548 units, expected orders are 5, and total annual inventory cost is $410.79

Uploaded by

Daneen Gastar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Jin, an automobile manufacturer, uses about 60,000 pairs of

bumpers (front bumper and rear bumper) per year, which it


orders from a supplier. The bumpers are used at a reasonably
steady rate during the 240 working days per year. It costs
$3.00 to keep one pair of bumpers in inventory for one
month, and it costs $25.00 to place an order. A pair of
bumpers costs $150.00. What is the EOQ?

Given:
S - 60,000 EOQ
O – 25
C – 3 per month = 36
Q-? EOQ = 289 pairs of bumpers.
What is the total cost of inventory?

Given:
S - 60,000
O – 25
C – 3 per month = 36
Q - 289

 TOTAL COST OF INVENTORY = C(Q/2) + O(S/Q)

= 36(289/2) + 25(60,000/289)
= $10,392.00 per year.
Erna runs a mail-order business for gym equipment
Annual demand for the RebFlexers is 16,000. The
annual holding cost per unit is $2.50 and the cost to
place an order is $50. What is the EOQ?

Given:
S - 16000
O – 50
C – 2.50
Q-?

EOQ =

EOQ = 800 units


What is the total cost of inventory?

Given:
S - 16000
O – 50
C – 2.50
Q - 800

 TOTAL COST OF INVENTORY = C(Q/2) + O(S/Q)

= 2.50(800/2) + 50(16000/800)
= $2000 per year.
Knight Cervantes operates a chocolate shop in Concepcion. The annual
demand for chocolate-covered cherries is 2,500 units. The setup cost is
P45 per order. The holding cost per unit per year is P0.75.
• What is the optimum number of units per order?
• What is the expected number of orders per year?
• What are the total annual inventory costs?
• If delivery of the chocolates takes 2 days, at what level of stock
should a new order be placed?

Given:
S - 2500
 EOQ =
O – 45
C – 0.75
Q-?
EOQ = 548 units.
Given: What is the expected number of orders per year?
S - 2500
O – 45 N = S/Q
C – 0.75 =2500/548
Q - 548 = 4.56 or 5

What are the total annual inventory costs?

 TOTAL COST OF INVENTORY = C(Q/2) + O(S/Q)

= 0.75(548/2) + 45(2500/548)
=205.5 + 205.29
= P410.79 per year.

If delivery of the chocolates takes 2 days, at what level of stock should a


new order be placed?

Re-Order Level = lead time x consumption rate


= 2 x 2500
= 5000

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