Question

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

Demand D= 19,500 ​units/year
Ordering cost= ​$25​/order
Holding cost H ​= $4​/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

Answer:

a) 493.71

b) 987.42

c) 987.42

Explanation:

a) The formula for Economic Order Quantity (EOQ) is :

EOQ = $\sqrt{2DS/H}$ where

• D : Demand in Units (typically on annual basis)
• S : Order cost (per purchase order)
• H : Holding Cost (per unit, per year

Therefore EOQ = $\sqrt{\frac{2*19,500*25}{4} }$

                EOQ = 493.71

b) Annual Holding Cost= (Q * H) / 2 = $\frac{493.71*4}{2}$ = 987.42

c) Annual ordering cost = (D * S) / Q = $\frac{19500*25}{493.71}$ = 987.42

Answer 2

Answer:

a. Calculate the EOQ for the workbooks = 493.71 units

b. What are the annual holding costs for the workbooks? = $987.42

c. What are the annual ordering costs = $987.42

SOLUTION

FORMULA FOR CALCULATING ECONOMIC ORDER QUANTITY IS

a. EOQ = √2 X D X S/H

Where:

Demand D= 19,500 ​units/year  

Ordering cost= ​$25​/order  

Holding cost H ​= $4​/unit/year

∴ EOQ = √2 x 19,500 x 25/4

= √39,000 x 6.25

= √243750

EOQ = 493.71 units

b.  What are the annual holding costs for the workbooks?

Holding cost H ​= $4​/unit/year

Annual Holding Cost = 493.71/2 x 4 = $987.42

= $396,000.00

∴ Holding cost H = $396,000.00

c. Find the Ordering Cost = ​$25​/order

Annual Ordering Cost = 19,500 /493.71  x $25 = $987.42