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Gartner Manufacturing Inc. purchases a component from a Malaysian supplier. The demand for that component is exactly 70 units each day. The company is open for business 250 days each year. When the company reorders the product, the lead time from the supplier is exactly 10 days. The product costs $14.00. The company determined that its inventory carrying cost is 20%. The company's order cost is $30.00. How many orders per year will be made, when using the EOQ

Sagot :

facundobuzzetti

Answer:

Number of orders= 28.59 = 29 orders

Explanation:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.

Economic order quantity (EOQ)= √[(2*D*S)/H]

D= Demand in units

S= Order cost

H= Holding cost

D= 70*250= 17,500

S= $30

H= 14*0.2= $2.8

Now, using the formula:

EOQ= √[(2*17,500*30) / 2.8]

EOQ= √375,000

EOQ= 612.37 = 612

Finally, the number of orders:

Number of orders= total demand / EOQ

Number of orders= 17,500 / 612

Number of orders= 28.59 = 29 orders

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