Question

1.XYZ is a retailer and sells 144,000 units per year. It purchases from a single supplier. Fixed costs per order are $846 and carrying cost is $8 per unit. How many units should XYZ purchase per order? That is, what is the Economic Order Quantity

2.XYZ is a retailer and sells 144,000 units per year. It purchases from a single supplier. Fixed costs per order are $897 and carrying cost is $10 per unit per year. In economic order quantity model, what would be the lowest total inventory cost? That is, the lowest sum of total carrying cost and total shortage cost.  

Answer 1

Q1.
Annual Demand (D) = 144000
Ordering cost (O) = 846
Carrying cost( c) = 8
EOQ = (2DO / C) ^ 2
	(2*144000*846/8)^ 2 = 5519 units
Q2.
Annual Demand (D) = 144000
Ordering cost (O) = 897
Carrying cost( c) = 10
EOQ = (2DO / C) ^ 2
	(2*144000*897/10)^ 2 = 5083 units
Number of orders = Annual demand / EOQ
		144000/5083 = 28.33 orders
Total Ordering cost = Number of orders *Ordering cost
		28.33*897 = 25412
Total Carrying cost = EOQ /2 * C
		5083/2 * 10 = 25415
Total Inventory cost = 25412+25415 = 50827