Question

A particular raw material is available to a company at three different prices, depending on the size of the order: Quantity range Cost (C) EOQ Feasible Less than 100 pounds $20 per pound 100 to 999 pounds $19 per pound 1,000 or more pounds $18 per pound The cost to place an order is $40. Annual demand is 3,000 units. Holding (or carrying) cost is 25% of the material price. What is the economic order quantity to buy each time? Format for Answer: The best order size is ___________ units at a cost of $____ per pound.

Answer 1

.Annual Demand D = 3000 units

Ordering cost S = 40

Economic order quantity EOQ

At Order quantity Q = 225, it is feasible, means it is within the range.

Now we calculate total cost at Q = 225 and Q = 1000

Total cost = Annual purchase cost+annual holding cost +Annual ordering cost =(CD) +(Q/2)H +(D/Q)S

At Q = 225

Total cost = (19*3000) +(225/2)*4.75 + (3000/225)*40 = 58067.71

At Q = 1000 units

Total cost = (18*3000) +(1000/2)*4.5 + (3000/1000)*40 = 56370

Total costs are less at Q = 1000

economic order quantity = 1000 units

The best order size is 1000 units at a cost of $18 per pound?