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Determine EOQ for bank cash

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A bank branch must keep a stock of cash on hand for customer withdrawals. The net daily withdrawal rate at the branch is $5,000. The opportunity cost of cash is 10% per year. Repleneshment of the cash stock from the central bank requires careful accounting and contracting to an armored delivery service. This costs $250 per repleneshment and requires 2 days of notice to the carrier. Determine the optimal policy for obtaining cash, that is how much and at what point?

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This solution provides a detailed step by step explanation of the given accounting problem.

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EOQ = SQRT (2 x Demand x Ordering Cost / Holding Cost)

Annual Demand = $5000 x ...

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