Consider a trading company located an industrial complex that sells electronic c
ID: 355059 • Letter: C
Question
Consider a trading company located an industrial complex that sells electronic components. Due to its location, when an order is placed, it is instantaneously replenished. The most popular product is a RFID reader, which has an annual demand of 4,000 units and the purchasing price per unit is $80. The selling price of a RFID reader is $100. The annual interest rate is 10% and the average ordering cost is $40 per order. Compute the optimal total annual cost, the economic order quantity, and the optimal order interval for RFID readers.
Explanation / Answer
D = 4000
P = 80
H = 10% of 80 = 8
S = 40
EOQ = sqrt(2*D*S/H) = sqrt(2*4000*40/8) = 200
Total Cost = (EOQ*H/2) + D*S/EOQ + P*D = 200*8/2 + 4000*40/200 + 80* 4000 = 321600
No. of orders in a year = D/EOQ = 4000/200 = 20
Order Interval = 20 orders in 12 months = One order after every 0.6 month = 1 order in every 20 days.
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