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EOQ Model

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For supply item PLT, Johann Company has been ordering 150 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:

Annual demand in units =300

Days used per year = 300

Lead time, in days = 15

Ordering costs = $125

Annual unit carrying costs = $25

Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

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Solution Summary

Solution depicts the steps and calculations needed to find the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

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EOQ?
D =Total demand= 300 units per year
S = ordering cost=$125 per order
H = carrying cost=$25 per unit per year
EOQ=(2DS/H)^0.5=(2*300*125/25)^0.5=54.7723 or 55 ...

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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