Question

Given the below demand, what is the total cost using an EOQ approach? Please take note of the hint below.

Hint: Use the average demand to find the EOQ. Round your EOQ to the nearest integer. Also in the last period, only produce what is needed to maintain 0 inventory at the end of Period 5.

Period 1: 30

Period 2: 65

Period 3: 40

Period 4: 60

Period 5: 85

Setup Cost: $1500

Holding Cost: $15 per unit/period.

Answer 1

Mean demand per period = 56

EOQ = [ 2 x demand per period x cost of set up / holding cost per period]^0.5

= [ 2 x 56 x 1500/15]^0.5 =105.83 =106

Item A Period	1	2	3	4	5
Gross requirements	30	65	40	60	85
Scheduled receipts	0	0	0	0	0
Projected on hand	76	11	77	17	0
Net requirements	30	0	29	0	68
Planned order receipts	106	0	106	0	68

Inventory cost based on ending inventory = 15x 181=2715

Set up cost = 1500x number of set ups = 1500x 3 =4500

Total cost = 2715+4500=7215