# Calculating the EOQ in the given case

Shoe Shine is a local retail shoe store located on the north side of Centerville. Annual demand for a popular sandal is 500 pairs, and John Dirk, the owner of Shoe Shine, has been in the habit of ordering 100 pairs at a time. John estimates that the ordering cost is $10 per order. The cost of the sandal is $5 per pair.

For John's ordering policy to be correct, what would the carrying cost as a percentage of the unit cost have to be? If the carrying cost were 10% of the cost, what would the optimal order quantity be?

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#### Solution Preview

For John's ordering policy to be correct, what would the carrying cost as a percentage of the unit cost

have to be?

Total demand= D=500 pairs per year ...

#### Solution Summary

Solution determines the carrying cost and optimal order quantity in the given case.

Calculating EOQ, ROP and Inventory Costs in the Given Case

Lakeland Company produces lawn mowers and purchases 18,000 units of a rotor blade part each year at a cost of $60 per unit. Lakeland requires a 15% annual rate of return on investment. In addition, the relevant carrying cost (for insurance, materials handling, breakage, and so on) is $6 per unit per year. The relevant ordering cost per purchase order is $150.

Required

1. Calculate Lakeland's EOQ for the rotor blade part.

2. Calculate Lakeland's annual relevant ordering costs for the EOQ calculated in requirement 1.

3. Calculate Lakeland's annual relevant carrying costs for the EOQ calculated in requirement 1.

4. Assume that demand is uniform throughout the year and known with certainty so that there is no need for safety stocks. The purchase-order lead time is half a month. Calculate Lakeland's reorder point for the rotor blade part.