Question

William Beville’s computer training school, in Richmond, stocks workbooks with the following characteristics:

Demand D = 19,600 units/year

Ordering cost S = $23/order

Holding cost H = $5/unit/year

a) Calculate the EOQ for the workbooks.
b) What are the annual holding costs for the workbooks?
c) What are the annual ordering costs?

Answer 1

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Answer:

• D = annual demand = 19,600units
• h = handling cost per unit = $ 5
• S = Ordering cost per order = $23

Part a:

• EOQ = optimal ordering quantity = [ (2*D*S) / h ]^1/2
• EOQ = 424.641 units

Part b:

• Average inventory = EOQ /2 = 212.32 (Answer)
• Holding cost = Average inventory * per unit holding cost = 212.32*5
• Total holding cost = 1061.60

Part c:

• No of orders = demand / EOQ = 19600 /424.641 = 46.156 (Nearly 46)
• Ordering cost = 46.156 * 23 = $1061.60       (Answer)