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Calculating EOQ, annual holding costs and ordering costs

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Southeastern Bell stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units. Southeastern estimates its annual holding cost for this item to be $ 25 per unit. The cost to place and process an order from the supplier is $ 75. The company operates 300 days per year and the lead time to receive an order from the supplier is 8 working days.

a) Find the economic order quantity.
b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?

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Solution describes the steps to calculate EOQ, annual holding costs, annual ordering costs and reorder point.

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(a) Find the economic order quantity.
Annual Demand=D=15000 units
Annual Holding cost=Ch=25 dollar
Order Cost=Co=75 dollar
EOQ = (2*D*Co/Ch)^0.5 ...

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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