Question

Question 9.  [Video-2.  EOQ]

Consider the relationship EOQ=sqrt(2*D*Co/Cc).  Constant demand is 1560 items/year.  

If the unit ordering cost is $490/order and the unit carrying cost is $1.5/item/week, then how many statements are true for zero safety stock?     (A) 0   (B) 1   (C) 2   (D) 3     (E) 4

Statement 1.  EOQ is 120

Statement 2.  At EOQ, the total weekly ordering cost is $105

Statement 3.  At EOQ, the total monthly carrying cost is $455

Statement 4.  At EOQ, the total annual inventory cost is $10920

. . .

Answer 1

ANSWER: OPTION B

Given

Relationship ==> EOQ=sqrt(2*D*Co/Cc)

Demand (D) = 1560 items/year

Ordering cost (S) = $490 /order

Holding cost (H) = $1.5 per week

Holding cost per year = $1.5*52 = $78 per year

EOQ = √(2*D*S/H)

= √(2*1560*490/78)

=√(19600)

= 140

Statement 1 is False.

==> Demand per week = 1560/52 = 30

==> Hence weekly orders = 30/140

==> Weekly ordering cost = (30/140)*490 = $105

Statement 2 is True

Monthly carrying cost = annual carrying cost/12 = (60*78)/12 = $390

Statement 3 is False

Statement 4 is False because we don’t know price of item to find total inventory cost.

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