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# Economic Order Quantity and Inventory

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The High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are \$100/ton. The cost per order is \$500. Calculate the optimal number of orders per year.

400

100

200

300
The High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are \$100/ton. The cost per order is \$500. Calculate the total costs of optimal inventory.

\$200,000

\$150,000

\$100,000

\$50,000

#### Solution Summary

The High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are \$100/ton. The cost per order is \$500. Calculate the optimal number of orders per year.

\$2.19

## Economic Order Quantity: Minimizing Ordering and Inventory Costs

As the production manager, you need to minimize both ordering and inventory costs. You need to provide a recommendation of the optimal order quantity of raw materials to your plant manager. Your objective is to determine the economic order quantity (EOQ). If the annual demand for Ultamyacin at Smitheford is 400,000 units, then the annual carrying cost rate is 15% of the cost of the unit. The product costs \$48/unit to purchase, and the product ordering cost is \$28.00.

-What is the basic EOQ?
-What is the TC (total cost) at the EOQ?
-How much would the TC increase if the order quantity must be 1,000 units?
-How is JIT (just-in-time) ordering methodology different from EOQ methodology?