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# EOQ - Economic (Optimum) Ordering Quantity

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Green Thumb Garden Centers sell 240,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initially) is 1,200 bags. Each bag costs Green Thumb \$4, inventory carrying costs are 20 percent, and the cost of placing an order with the firm's supplier is \$25.

A) What is the economic ordering quantity?
B) What is the maximum inventory of fertilizer?
C) What will Green Thumb's average inventory be?
D) How often must the company order bags of fertilizer?

#### Solution Preview

Green Thumb Garden Centers sell 240,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initially) is 1,200 bags. Each bag costs Green Thumb \$4, inventory carrying costs are 20 percent, and the cost of placing an order with the firm's supplier is \$25.

A) What is the economic ordering quantity?
B) What is the maximum inventory of ...

#### Solution Summary

Word document contains the economic ordering quantity, the maximum inventory of fertilizer, average inventory.

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## Inventory Management Economic Order Quantity

1. Suppose that the R&B Beverage Company has a soft drink product that has a constant
annual demand rate of 3600 cases. A case of the soft drink costs R&B \$3. Ordering costs
are \$20 per order and holding costs are 25% of the value of the inventory per year. R&B
has 250 working days per year and the lead time is 5 days. Identify the following aspects
of the inventory policy.

(a) Economic order quantity
EOQ = ___________________________
(b) Reorder point
Reorder Point = ___________________________
(c) Total annual cost (You don't need to include the annual purchase cost)
Total Annual Cost = ______________________________

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