Question

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

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.

Business   Operations-Management   
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Homework Answers

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

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