Question

Please explain:

Using the basic EOQ model, the higher an item's holding costs, the less frequently it will be ordered.

2)   In the basic EOQ model, if D= 50 per month, K=$10, and h=$10 per unit per month, EOQ is:

3) A store sells five cases of soda each day. Ordering costs are $8 per order, and soda costs $3 per case. Orders arrive four days from the time they are placed. Daily holding costs are equal to 5% of the cost of the soda. What is the EOQ for soda?

Answer 1

2)

In the basic EOQ model, the formula we use is EOQ = Sqrt(2DS/H)

Given

D= 50 per month,

K=$10, and

h=$10 per unit per month

D = 50*12, K (or S) = 10, H = 10. This means the EOQ = sqrt(2*50*12*10/10) = 34.64 or 35 units

3)

A store sells five cases of soda each day. Ordering costs are $8 per order, and soda costs $3 per case.

Holding cost = 0.05*3 = 0.15 per day. This means H = 0.15*365 = 54.75. The annual demand (D) = 5*365 = 1825 and ordering cost (S) = 8

This means the EOQ is sqrt(2*5*365*8/54.75) = 23.09 or 23 cases.