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operational management question. How to find the ordering cost?
Henry Crouch’s law office has traditionally ordered ink refills at 60 units a time. The firm estimates
that carrying cost is 40% of the unit cost, and that annual demand is about 240 units per year.
The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost
would its action be optimal?
really? 34.64? but in the solution section it shows ordering cost and EOQ 60 units
EOQ = sq rt[(2 * Annual usage (demand) * order cost)/Carrying Cost]
EOQ = sqrt[(2*240 * (10))/(4)]
here the size of the order is disregarded !
EOQ = sqrt[1200]
EOQ = 34.64 units
refer :
http://www.cargalmathbooks.com/The%20EOQ%20Formula.pdf – u can get an idea about the optimal point
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