Purchase Solution

# Getting Order Quantity from EOQ Equation

Not what you're looking for?

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?

##### 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.

##### Solution Preview

Machine Operates 24 hours per day,

Total days in a year = 365 x 24 = 8760 ...

Solution provided by:
###### Education
• BE, Bangalore University, India
###### Recent Feedback
• "What does 1 and 0 means in the repair column?"
• "Went through all of the formulas, excellent work! This really helped me!"
• "try others as well please"
• "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."

##### Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Importance of Critical Thinking

##### Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.