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# EOQ Computation for Salesworthy Sprokets Company

The Salesworthy Sprokets company purchase a sprocket flange used in the manufacture of aircraft door hinges directly from the supplier. Salesworthy's hinge production line, which is operated at a constant rate, will require 1,000 flanges per month throughout the year (....12,000 per year). if the administrative cost of placing and receiving an order is \$ 25 per order, if the flanges cost \$ 2.50 each, and if the per annum inventory holding charge is 20% based on average levels:

a) What is the EOQ for this component; and what is the total annual inventory ordering and carrying cost for the year? ( EOQ=1096; TC=\$547.72; OC=\$ 273.72; CC=\$ 274.00). Please show all work.

b) Supposed the problem is changed such that yearly demand is now \$ 10,000 worth of sealing gook (.... in 1 gallon cans, priced at wholesale), instead of the 520 cans per month. From this new data, recalculate the EOQ and the total cost equations.

#### Solution Preview

Item A step-by-step guide.

Given:
Annual inventory of flanges= 12,000 per year
Cost of Placing an order= \$25
Price of flange= \$2.50
Percentage of carrying cost= 20%

EOQ= SQUARE ROOT OF ( Annual Inventory) (Cost per order) /(Price Per unit) (% of carrying)

EOQ= SQUARE ROOT OF 2 ( 12000) (25) /(2.50) (.20)
EOQ= SQUARE ROOT OF 600000 / .5
EOQ= SQUARE ROOT OF 1200000
EOQ= 1095.445 rounded off to 1,096 units

Note: This means that Sprokets company must order 1095.445 (say 1,096)units of flange per ordering ...

#### Solution Summary

The solution shows how to compute for economic order quantity to determine the optimal ordering frequency and volume.

\$2.19