25 Jun Find the optimal order quantity that minimizes total annual
Question
Homework #4:____/10
Name:______________________
1. Demand for an item is 1,000 units per year. Each order placed costs $10. The annual cost
to carry items in inventory is $2 each. What is the optimal order quantity (EOQ)?
2. The annual demand of a component used in company ABC is 2,000 units. Each time an
order is placed it costs the company $10. Storage costs, which include insurance and cost
of capital, amount to $5 per unit of inventory.
a) What is the EOQ for the component?
b) What is the annual ordering cost for the component?
c) What is the annual inventory holding cot for the component?
d) What is the reorder point if the lead time is constant at 10 days? (1 year=360 days)
e) How many orders do we place during a year?
f) How many days lie between each order?
Source: Jacobs and Chase (2013). Operations and Supply Chain Management. The Core. 3 rd edition.
McGraw Hill Irwing, New York
EOQ with quantity discounts:
1. Steamy Speedboats has an annual demand for 1,000 toy speedboats. Its supplier offers
quantity discounts to promote larger order quantities. The cost to place an order is $20
and the inventory holding rate factor is 20%. The purchase cost for each speedboat is
based on the following price schedule:
Order Quantity
1-50
51-100
101-150
151 and above
Price per unit
$10
$8
$6
$4
Find the optimal order quantity that minimizes total annual inventory cost and calculate
the total annual inventory cost at the optimal order quantity.
Source: Jacobs and Chase (2013). Operations and Supply Chain Management. The Core. 3 rd edition.
McGraw Hill Irwing, New York
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