Question

The Trektronics store begins each week with 450 phasers in stock. This stock is depleted each week and reordered. The carrying cost per phaser is $34 per year and the fixed order cost is $130.What is the economic order quantity? How many orders per year will Trektronics place under the new policy?

Answer 1

(a)-Economic Ordering Quantity (EOQ)

Economic Order Quantity [EOQ] is calculated by using the following formula

Economic Order Quantity = [(2 × Annual Demand x Ordering Cost) / Carrying Cost]^½

Annual Demand = 23,400 Phasers [450 Phasers per week x 52 weeks in a year]

Ordering Cost = $134 per Order

Carrying cost/Holding Cost = $34 per Phaser

Therefore, the Economic Order Quantity = [(2 × Annual Demand x Ordering Cost) / Carrying Cost] ^½

= [(2 x 23,400 x 130) / 34] ^½

= [60,84,000 / 34] ^½

= [178,941] ^½

= 423 Phasers

(b)-Number of Orders per year

Number of Orders per year = Annual Demand / EOQ

= 23,400 Phasers / 423 Phasers

= 55 Orders per year