Question

Our home construction company buys nails in 15-pound boxes. We use an average of 1748 boxes a year. The vendor that makes the nails can produce 47 boxes per day while our usage is 6 boxes per day. It costs $2.40 to set up for each run. Annual carrying costs are $0.40 per box. What will be our average number of boxes on hand if we produce EPQ boxes in each order?

Answer 1

Answer:

72.42 boxes

Explanation:

In order to compute the  average number of boxes on hand, first we have to compute the economic order quantity which is shown below:

Economic order quantity

$=\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

$=\sqrt{\frac{2\times \text{1,748}\times \text{\ 2.40}}{\text{\ 0.40}}}$

= 144.83 boxes

Now the average inventory is

= Economic order quantity ÷ 2

= 144.83 boxes ÷ 2

= 72.42 boxes

Therefore, an average number of boxes on hand is 72.42 boxes