# basic formula for EOQ

Demand for a popular athletic shoe is nearly constant at 800 pairs per week for a regional division of a national retailer. The cost per pair is $54. It costs $72 to place an order, and annual holding costs are charged at 22% of the cost per unit. The lead time is two weeks.

a. What is the EOQ?

b. What is the reorder point?

c. What is the cycle time?

d. What is the total annual cost?

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#### Solution Preview

Dear Student- I have included my response below.

a. Q* = 710.1

b. r = 1600

c. T = 710.1/800 ...

#### Solution Summary

The basic formula for EOQ is applied to this case.

Inventory problem: Basic EOQ model

Tele-Reco is a new specialty store that sells television sets, videotape recorders, video games, and other television-related products. A new Japanese-manufactured videotape recorder costs Tele-Reco $600 per unit. Tele-Reco's annual holding cost rate is 22%. Ordering costs are estimated to be $70 per order.

a. If demand for the new videotape recorder is expected to be constant with a rate of 20 units per month, what is the recommended order quantity for the videotape recorder?

b. What are the estimated annual inventory holding and ordering costs associated with this product?

c. How many orders will be placed per year?

d. With 250 working days per year, what is the cycle time for this product?