M. cotteleer electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. one of the components has an annual demand of 250 units, and this is constant through out the year. carrying cost is estimated to be $1 per unit per year, and the ordering cost is $20 per order. a) to minimize cost, how many units should be ordered each time an order is placed? b) how many orders per year are needed with the optimal policy? c) what is the average inventory if costs are minimized?

### Answers

a) 100 units

b) 2.5 order per year

c) 50 units

Explanation:

Given data:

demand 250 units

order cost is $20

holding cost $1

a) Economic order quantity

b) number of order for each year

order/ year

c) average inventory

205 units

Explanation:

In this question, we have to compute the economic order quantity which is shown below:

The formula to calculate the economic order quantity is shown below:

=

=

= 205 units

In these units, the ordering cost and the carrying cost are equal so that no wastage of the stock is done and it tells about the minimum inventory the company has to produced.

Answer and Explanation:

The computation is shown below:

a. The computation of the economic order quantity is shown below:

= 90 units

b. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= 265 ÷ 90 units

= 3 orders per year

c. The average inventory is

= Economic order quantity ÷ 2

= 90 units ÷ 2

= 45 units

d. Now in this we have to find out the ordering cost which is shown below by applying the economic order quantity formula

After squaring both the sides, the ordering cost is $36.85

EOQ 100

2.5 order per day

every 146 days

For EOQ of 150 then ordering cost should be of 45 dollar

Explanation:

Economic order quantity:

Where:

D = annual demand =250

S= setup cost = ordering cost =20

H= Holding Cost =1.00

EOQ = 100

order per year: 250 / 100 = 2.5 order per year

days between orders:

365 / 2.5 = 146 days

part B:

To make 150 units the EOQ the optimal order quantity

then ordering cost should be:

S = $45

The quanitity per order that minimizes the cost is 137.84 units.

Explanation:

The EOQ or economic order quantity is the quantity that should be ordered per order to minimize the cost of ordering and holding inventory. To calculate the number of units that should be ordered per order to minimize cost, we need to calculate the EOQ.

EOQ = √(2*D*O)/H

Where,

D is the annual demand in unitsO is the ordering cost per orderH is the holding/carrying cost per unit per annum

Thus,

EOQ = √(2 * 250 * 19)/0.5

EOQ = 137.84