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A textile manufacturer has cloth that has a $14 per yard carrying cost per year. This...

A textile manufacturer has cloth that has a $14 per yard carrying cost per year. This cloth is used at a rate of 25,000 yards per year, and ordering costs are $10 per order.

What essential features of inventory management are successfully captured by the “economic order quantity” model?
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Answer #1

Answer 1 EOQ = 188.98 yards

EOQ = =   

Where EOQ = Economic Order Quantity

A = Annual requirement = 25,000 yards

O = Ordering cost per order = $10 per order.

C = Carrying cost per unit per annum = $14

Answer 2

Essential features of inventory management caputured by the EOQ model

1. Estimate the annnual requirement of inventory.

2. Estimation of Cost of carrying inventory.  

3. Estimation of Oredering cost per orde.

4. Ordering and carrying such quantity which would minimise the Total cost , i.e. Total Ordering cost + Total Carrying Cost

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