Week 3 Chat Solutions

Week 3 Chat Solutions - Week3ChatSolutions 2026 (30min.)...

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Week 3 Chat Solutions 20-26 (30 min.) Effect of different order quantities on ordering  costs and carrying costs, EOQ. 1.   Scenario   1 2 3 4 5 Demand (units) (D) 380,0 00 380,0 00 380,0 00 380,0 00 380,0 00 Cost per purchase order (P) 57.00 57.00 57.00 57.00 57.00 Annual carrying cost per package  (C) 12.00 12.00 12.00 12.00 12.00 Order quantity per purchase order  (units) (Q) 760 1,000 1,900 3,800 4,750 Number of purchase orders per year  (D Q) 500 380 200 100 80 Annual ordering costs (DQ) P $28,5 00 $21,6 60 $11,4 00 5,700 4,560 Annual carrying costs (QC  2) $   4,560 $   6,000 $11,4 00 $22,8 00 $28,5 00 Total relevant costs of ordering and  carrying inventory $33,0 60 $27,6 60 $22,8 00 $28,5 00 $33,0 60
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The economic order quantity is 1,900 packages. It is the order quantity at  which carrying costs equal ordering costs and total relevant ordering and  carrying costs are minimized.   We can also confirm this from direct calculation.  Using D = 380,000; P =  $57 and C = $12 EOQ =  It is interesting to note that Soothing Meadow faces a situation where total  relevant ordering and carrying costs do not vary very much even though  order quantities vary greatly from 760 packages to 4,750 packages. The  square root in the EOQ model dampens the effect of the variations in order  quantity by making the incorrect numbers smaller. 2. When the ordering cost per purchase order is reduced to $30: EOQ =   The EOQ drops from 1,900 packages to 1,378 packages when Soothing  Meadow’s ordering cost per purchase order decreases from $57 to $30. And the new relevant costs of ordering inventory =   =  = $8,272
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and the new relevant costs or carrying inventory  =   =  = $8,268 The total new relevant costs of ordering and carrying inventory = $8,272 +  $8,268 = $16,540. The slight difference in relevant ordering costs ($8,272)  and relevant carrying costs ($8,268) is because of rounding down the 
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This note was uploaded on 06/01/2011 for the course ACCT 433b taught by Professor Alfredcontreras during the Spring '11 term at National.

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Week 3 Chat Solutions - Week3ChatSolutions 2026 (30min.)...

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