Question

garden variety flower shop uses 187.5 clay pots a week. annual carrying costs are $0.60 per pot per year. ordering costs are $20 per order. lead time is 2 weeks. the store operates 48 weeks per year. how much should the store order at one time?

Answer 1

The store should order 745 clay pots at one time. The Economic Order Quantity is 745.

What is Economic Order Quantity?

The optimal number of units to buy to satisfy demand while reducing inventory expenses including holding costs, stock outs, and order costs is known as the economic order quantity (EOQ).

Economic order quantity is a formula used by businesses to determine the ideal order amount in an effort to reduce the expenses associated with logistics, warehouse space, stock outs, and overstocks. The EOQ model's objective is to establish the ideal quantities you ought to have.

Given,

Weekly Demand (d) = 187.5 clay pots

Annual demand (D) = 187.5*8

                                = 9000

Ordering cost (S) = $20

Carrying Cost (H) = $0.60 per pot

$EOQ=\sqrt{\frac{(2\times D\times S)}{H} }$

$EOQ=\sqrt{\frac{(2\times 9000\times 20)}{0.60} }$

$EOQ=\sqrt{\frac{360000}{0.60} }$

EOQ = 774.6≈775

Therefore, the store should order 745 clay pots at one time.

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