EOQ problems with Solutions as PDF

EOQ problems with Solutions as PDF - Ch. 12: Inventory...

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Ch. 12: Inventory Management Practice problems on EOQ Problem 1 A company makes bicycles. It produces 450 bicycles a month. It buys the tires for bicycles from a supplier at a cost of $20 per tire. The company’s inventory carrying cost is estimated to be 15% of cost and the ordering is $50 per order. a. Calculate the EOQ In this problem: D = annual demand = (2 tires per bicycle) x (450 bicycles per month) x (12 months in a year) = 10,800 tires S = ordering cost = $50 per order H = carrying cost = (15%) x ($20 per unit) = $ 3.00 per unit per year EOQ = Square root of { (2 x 10,800 x $50) / $3 = Square root of 400,000 = 600 tires The company should order about 600 tires each time it places an order. b. What is the number of orders per year? Number of orders per year = D / Q = 10,800 / 600 = 18 orders per year c. Compute the average annual ordering cost. Average annual ordering cost = (18 orders per year) x ($50 per order) = $900 per year d. Compute the average inventory. Average inventory = Q / 2 = 600 / 2 = 300 tires e. What is the average annual carrying cost? Average annual carrying cost = (average inventory) x (H) = (300 tires) x ( $3) = $900 per year f. Compute the total cost. Total cost = (Average annual ordering cost) + (average annual carrying) = ($900) + ($900) = $1,800
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Problem 2 Consider the previous problem. If the company orders the item once a quarter a. Compute the number of orders per year. Since the company is placing orders once a quarter, the number of orders must 4 b. What is order quantity? Order quantity = 10,800 / 4 = 2,700 tires.
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This note was uploaded on 04/09/2010 for the course GSC 3600 taught by Professor Verma during the Winter '10 term at Wayne State University.

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EOQ problems with Solutions as PDF - Ch. 12: Inventory...

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