Consider the economic order quantity (EOQ) model for multiple products that are independent except for a budget restriction. The following model describes this situation.
Let Dk = annual demand for product kCk = unit cost of product kSk = cost per order placed for product k
i = inventory carrying charge as a percentage of the cost per unitB = the maximum amount of investment in goodsN = number of products
The decision variables are Qk, the amount of product k to order. The model is:
s.t.
a. Set up a spreadsheet model for the following data:
Product 1Product 2Product 3Annual Demand1,250
1,550
1,450
Product Cost$120
$90
$105
Order Cost$110
$175
$140
B$30,000
i0.3
b. Solve the problem using Excel Solver. (Hint: For Solver to find a solution, you need to start with decision variable values that are greater than 0.)
What will be an ideal response?
a.
?
b. The optimal solution is Q1 = 31.565, Q2 = 51.194, and Q3 = 41.002 with a total minimum cost of $29,211.
?
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