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Calculating EOQ and minimum cost in the given case

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Ivonne Callen sells beauty supplies. Her annual demand is 1000 units. The cost of placing an order is $20, while the holding cost per unit per year is 10% of the cost. This item currently cost $10 if the order quantity is less than 300. For orders of 300 units or more the cost falls to $9.80. To minimize total cost, how many units should Ivonne order each time she places an order? What is the minimum total cost?

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Solution describes the steps to calculate EOQ and minimum cost in the given case.

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D =Total demand= 1000 units per year
S = ordering cost=$20 per order

Case-1 Price is $10 (ordered quantity is less than 300 units)
P = Item purchase price = $10.00 per unit
H=Holding cost per unit per year=10% of $10=$1.00

EOQ=(2DS/H)^0.5=(2*1000*20/1)^0.5=200 units

Case-2 Price ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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