Purchase Solution

EOQ Model

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For supply item PLT, Johann Company has been ordering 150 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:

Annual demand in units =300

Days used per year = 300

Lead time, in days = 15

Ordering costs = \$125

Annual unit carrying costs = \$25

Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

Solution Summary

Solution depicts the steps and calculations needed to find the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

Solution Preview

EOQ?
D =Total demand= 300 units per year
S = ordering cost=\$125 per order
H = carrying cost=\$25 per unit per year
EOQ=(2DS/H)^0.5=(2*300*125/25)^0.5=54.7723 or 55 ...

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• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
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