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A company produces screwdrivers and is open for 250 days. In the year of 2020, annual demand is 25,000, annual holding cost (H) is $10/unit, ordering cost (S) is $75, and lead time is 3 days. Calculate reorder point and total cost for EOQ model.
300 units, $3,000 |
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400 units, $5,477 |
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300 units, $3,058 |
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350 units, $6,123 |
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300 units, $6,123 |
Option 5) 300 units, $6,123
Working note :
Annual demand = 25000 units
ordering cost = $75
holding cost = $10
EOQ =
= = 612.37 units
No. of orders = annual demand / EOQ = 25000/612.37 = 40.82 orders
Time between orders = 250/41 = 6.098 days
Lead time (given) = 3 days
Since lead time < time between orders
Therefore, Reorder point = (25000/250)*3 = 300 units [no. of working days = 250days]
Total cost of EOQ = Total ordering cost + Total holding cost
= (No. of orders * ordering cost) + (EOQ/2)*holding cost
= (40.82*$75) + (612.37/2)*$10 = $3061.5 + $3061.85 = $6123.35 or $6123
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