A local artisan uses supplies purchased from an overseas supplier. The owner believes the assumptions of the EOQ model are met reasonably well. Minimization of inventory costs is her objective
Relevant data, from the files of the craft firm, are annual demand (D) =150 units, ordering cost (S) = $42 per order, and holding cost (H) = $4 per unit per year
a. How many should she order at one time?
b. How many times per year will she replenish her inventory of this material?
c. What will be the total annual inventory (holding and setup) costs associated with this material (rounded to the nearest dollar)?
d. If she discovered that the carrying cost had been overstated, and was in reality only $1 per unit per year, what is the corrected value of EOQ?
a. Q* = = 56.12. She should order 56 units at a time.
b. N = = 2.67 She should place about 2.67 orders per year.
c. Setup costs = 2.67($42 ) = $112. Holding costs = (56.12/2 )($4 ) = $112.
Total costs = $112 + $112 = $224.
d. At the lower value for H, the EOQ will be doubled to 112.25.
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