Question

The demand for a product is 600 units per week, and the items are withdrawn at a constant rate. The setup cost for placing an order to replenish inventory is $25. The unit cost of each item is $3, and the inventory holding cost is $0.05 per item per week. Show how each of these below changes, will impact Maximum Inventory S*

(a) The setup cost is reduced to 50% of original value

(b) The annual demand rate become three times as large as its original value.

(c) The unit holding cost increases to 150% of its original value.

Answer 1

EQO= Square Root of ((2XAnnual DemandXOrder cost )/Carying cost)

Original EOQ= Sqr((2X (600X52)X25)/0.05))

= 5585.69 or 5586

a) if Set up cost reduced

Revised set up cost = (25X0.50)=12.50

EOQ= Sqr((2X (600X52)X12.50)/0.05))

= 3949.68 or 3950

b) ifAnnual demand rate increased 3 time

Revised Annual demand = (600X52)*300%=12.50

EOQ= Sqr((2X (600X52)X12.50)/0.05))

= 9774.71 or 9675

c) if Unit holding increase to 150%

Revised unit holding cost = (0.050X 150%)=0.075

EOQ= Sqr((2X (600X52)X25)/0.075))

= 4560.70or 4561