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Economic Order Quantity - EOQ

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Annual demand: 2500
Holding cost per bracket per year: $1.50
Order cost per order: $18.75
Lead time: 2 days
Working days per year: 250

Please answer the following questions:

A. What is the Economic Order Quantity (EOQ)?
B. Given the EOQ: What is the annual inventory holding cost?
C. Given the EOQ: What would be the average inventory?
D. Given the EOQ: How many orders would be made each year?
E. Given the EOQ: What would be the annual order cost?
F. Given the EOQ: What is the total annual cost of managing the inventory?
G. What is the time between orders?
H. What is the reorder point?

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Solution Summary

The solution defines Economic Order Quantity (EOQ) and provides a step-by-step explanation given the EOQ to each of the inventory questions listed in the long description.

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Below are the answers to the given questions:

A. What is the Economic order quantity (EOQ)?

= sqrt (2 x demand x ordering cost / holding cost)

= sqt ( 2 x 2500 x 18.75 / 1.5)

= 250 units.

B. Given the EOQ: What is the annual inventory holding cost? ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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