Getting Order Quantity from EOQ Equation
I have the following problem:
A critical piece of operational equipment contains 30 parts of the same type. The equipment operates 24 hours a day and the critical pieces have a predicted failure frequency of 10,000 hours.
If spares are procured as part of an EOQ policy with: cost per unit of $100, cost of preparation and shipping of $25, an estimated cost of managing an item in inventory of 25% of the inventory value, what is the order quantity and annual costs?
I know:
c = item cost per unit = $100
k = fixed cost per order = $25
h = 25% per year
I need to know:
A = annual demand
since I would use the eqn for EOQ:
EOQ = sqrt((2*k*A)/(h*c))
How do I solve for the annual demand so that I can use the equation above to get the order quantity?
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Solution Preview
Machine Operates 24 hours per day,
Total days in a year = 365 x 24 = 8760 ...
Solution Summary
This solution shows step-by-step calculations to determine the expected number of parts needed using total days in a year, probability of a failing part and number of parts in the equipment.