Chap012- Calculation.A

# Chap012- Calculation.A - Page 559 Basic EOQ Model -ONE The...

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1 The basic EOQ model is used to find a fixed order quantity (Q) [EOQ] that will minimize total annual inventory costs Page 559 Basic EOQ Model - ONE cost holding unit per annual cost) der demand)(or annual ( 2 2 * = = H DS Q cost Ordering year per unit in usually Demand, unit per cost (carrying) Holding units in quantity Order where 2 Cost Ordering Annual Cost Holding Annual Cost Total = = = = + = + = S D H Q S Q D H Q Numbe r of orders per year = D/Q Length of an order cycle = Q/D Average inventory on hand = Q/2 units Formula Page 587

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2 Page 562 Basic EOQ Model No. 3/594 A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,860 bags per year. Preparation an order and receiving a shipment of flour involves a cost of \$10 per order. Annual carrying costs are \$75 per bag. D = 4,860 bags/yr. S = \$10 per order H = \$75 per bag cost holding unit per annual cost) der demand)(or annual ( 2 2 * = = H DS Q a. Determine the Economic Order quantity (EOQ)? bags 36 75 10 ) 860 , 4 ( 2 H DS 2 Q = = = b. What is the average number of bags on hand? Q/2 = 36/2 = 18 bags Average inventory on hand = Q/2 units c . How many orders per year will be there? Numbe r of orders per year = D/Q orders 135 orders / bags 36 bags 860 , 4 Q D = =
Page 562 Basic EOQ Model d. Compute the total cost of ordering and carrying cost cost Ordering year per unit in usually Demand, unit per cost (carrying) Holding units in quantity Order where 2 Cost Ordering Annual Cost Holding Annual Cost Total = = = = + = + = S D H Q S Q D H Q S Q D H 2 / Q TC + = 700 , 2 \$ 350 , 1 350 , 1 ) 10 ( 36 860 , 4 ) 75 ( 2 36 = + = + = D = 4,860 bags/yr. S = \$10 per order

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## This note was uploaded on 01/11/2012 for the course MANAGEMENT mgt3904 taught by Professor Ye during the Winter '11 term at Assumption College.

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Chap012- Calculation.A - Page 559 Basic EOQ Model -ONE The...

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