|
|
| Optimal order quantity |
2328 units |
| Reorder point |
1491 units |
- ?Optimal order quantity
Optimal order quantity (EOQ) = ? (( 2*D*O ) / C)
Here, D = Annual Demand = 23,500
O = Order cost = 218
C = Carrying cost = 27% of item cost
Item cost = 7
So, C = 27% of 7 = 1.89
Optimal order quantity (EOQ) = ? ((2*23,500*218) / 1.89)
= 2328 units approximately
Reorder point –
Reorder point= d L + Z s L
d = Average demand = 470 per week
L = Lead time = 3 weeks
Z=2.33 from NORMSINV in excel
s L = ? (L * Standard deviation * Standard deviation) = ?(3*20*20) = 34.64
Reorder point= (470*3) + (2.33*34.64)
= 1410+80.71
= 1491 units
b.
|
|
| Holding cost |
$2199.96 |
| Ordering cost |
$2200.60 |
|
Holding cost = (EOQ / 2) *Carrying cost
= (2328/2) * 1.89
= $ 2199.96
Ordering cost = (Annual Demand / EOQ) * Ordering cost
=( 23,500 / 2328) * 218
= $ 2200.60
