ch22boc-model

# ch22boc-model - EOQ =(2*F*S(C*P 0.5 = P C S F 2 EOQ = A B C...

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Chapter 22, Other Topics in Working Capital Management 3/19/03 1 and 2. THE ECONOMIC ORDERING QUANTITY (EOQ) MODEL Data for the example: S = annual units (autos) sold = 3,000 N = number of orders per year = 15 # units per order = S/N = 200 A = average inventory = # units per order / 2 = (S/N)/2 = 100 C = percentage carrying cost = 20.58% P = purchase price per car = \$45,000 F = fixed costs per order = \$2,000 Total carrying costs (TCC) = (C)(P)(A) = \$925,921 Total ordering costs (TOC) = (F)(N) = \$30,000 Total inventory cost (TIC) = TCC + TOC = \$955,921 Economic order quantity (EOQ) = optimal quantity to be ordered 36 Data for EOQ Graph The EOQ model provides a pedagogically useful explanation of inventory theory. The following example (for an up-scale auto dealer) illustrates the model.

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Unformatted text preview: EOQ = [ (2*F*S) / (C*P) ] 0.5 = ) P )( C ( ) S )( F ( 2 EOQ = A B C D E F G H I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Inventory Costs Costs as a function of Units ord Units ordered Carrying costs \$925,921 1 \$4,630 10 \$46,296 20 \$92,592 30 \$138,888 40 \$185,184 50 \$231,480 60 \$277,776 70 \$324,072 80 \$370,368 90 \$416,664 100 \$462,961 110 \$509,257 120 \$555,553 130 \$601,849 140 \$648,145 150 \$694,441 160 \$740,737 170 \$787,033 180 \$833,329 190 \$879,625 200 \$925,921 210 \$972,217 220 \$1,018,513 230 \$1,064,809 0 10 20 30 40 50 60 70 80 90 100 \$0 \$100,000 \$200,000 \$300,000 \$400,000 \$500,000 \$600,000 Column I Column J Column K A B C D E F G H I 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49...
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