Matthew? Liotine\'s Dream Store sells water beds and assorted supplies. His? bes
ID: 430919 • Letter: M
Question
Matthew? Liotine's Dream Store sells water beds and assorted supplies. His? best-selling bed has an annual demand of
390
units. Ordering cost is
?$48
holding cost is
?$55
per unit per year.
?a) To minimize the total? cost, how many units should be ordered each time an order is? placed?
EOQ? =
nothing
units ?(round your response to the nearest whole? number).
?b) If the holding cost per unit was
?$6.00
instead of
?$55?,
what would the optimal order quantity? be?
New EOQ? =
nothing
units ?(round your response to the nearest whole? number).
Explanation / Answer
Solution:
(a) Economic order quantity (EOQ) is calculated as,
EOQ = SQRT [(2 x D x Co) / H]
where,
D = Annual demand
Co = Ordering cost
H = Holding cost
Putting the given values in the above formula, we get;
EOQ = SQRT [(2 x 390 x $48) / $55]
EOQ = 26.09 or 26 units (Rounding off to the nearest whole number)
EOQ = 26 units
(b) New holding cost, H = $6
New EOQ = SQRT [(2 x D x Co) / H]
New EOQ = SQRT [(2 x 390 x $48) / $6]
New EOQ = 78.99 or 79 units (Rounding off to the nearest whole number)
New EOQ = 79 units