Wlliam Beville’s computer training school, in Richmond, stocks

workbooks with the following characteristics:

Demand D = 20000 units/year
Ordering cost S = $25/order
Holding cost H = $4/unit/year
Calculate the EOQ for the workbooks.
What are the annual holding costs for the workbooks?
What are the annual ordering costs?
How many orders are placed in an year?

Demand, D 20000
"EOQ = " √(2" O D" /𝐻)
Ordering cost, O 25
𝑥" " 20000" " )/4) " "
Holding cost, H 4
=" 500 " 𝒘𝒐𝒓𝒌𝒃𝒐𝒐𝒌
Economic Order Quantity, EOQ 500
Annual holding cost 1000
No. of orders per year 40
■8(𝑨𝒏𝒏𝒖𝒂𝒍"  "
Annual ordering cost 1000 𝒙" " 𝑶𝒓𝒅𝒆𝒓𝒊𝒏𝒈"
" " 𝒙" " 𝟐𝟓=" " 𝟏
ocks

EOQ = " √(2" O D" /𝐻) " = " √((2" " 𝑥" " 25" "
■8(■(𝑨𝒏𝒏𝒖𝒂𝒍"  " 𝒉𝒐𝒍𝒅𝒊𝒏𝒈"  "
" " 20000" " )/4) " " 𝐜𝐨𝐬𝐭" " =" " @𝑨𝒗𝒆𝒓𝒂𝒈𝒆" "
=" 500 " 𝒘𝒐𝒓𝒌𝒃𝒐𝒐𝒌� 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚" " 𝒙" " 𝑯𝒐𝒍𝒅𝒊𝒏𝒈" "
𝐜𝐨𝐬𝒕)@=" " 𝑬𝑶𝑸/𝟐 " " 𝒙" " 𝑯" "
=" " 𝟓𝟎𝟎/𝟐 " " 𝒙" " 𝟒" " =" 1000" )

■8(𝑨𝒏𝒏𝒖𝒂𝒍"  " 𝒐𝒓𝒅𝒆𝒓𝒊𝒏𝒈"  " 𝐜𝐨𝐬𝒕=" " 𝑵𝒖𝒎𝒃𝒆𝒓" " 𝒐𝒇"  " 𝒐𝒓𝒅𝒆𝒓�" "

𝒙" " 𝑶𝒓𝒅𝒆𝒓𝒊𝒏𝒈" " 𝐜𝐨𝐬𝒕@=" " 𝑫/𝑬𝑶𝑸 " " 𝑿" " 𝑶" " =" " 𝟐𝟎𝟎𝟎𝟎/𝟓𝟎𝟎
" " 𝒙" " 𝟐𝟓=" " 𝟏𝟎𝟎𝟎)
𝒓�" "
𝟓𝟎𝟎
 Sharp Needles Co. markets special hypodermic needles to hospitals and is interested in
reducing their inventory. The annual demand is 1000 units, the setup cost or ordering cos
Rs.10 per order and the cost of holding is Rs.0.50 per unit per year. Each hypodermic nee
costs Rs.10. Calculate
(1) Economic Order Quantity,
(2) Number of orders,
(3) Expected time between orders,
(4) Total cost of inventory and
(5) Total annual cost. Assume 250 working days per year.

If the demand increases to1500 units, and the same order quantity is used, what is the tot
cost of inventory? Determine the total costs if new order quantity is used? Compare the t
cases and comment.

With EOQ Without EOQ

Demand, D 1000 1500 1500
Ordering cost, O 10 10 10
Holding cost, H 0.5 0.5 0.5
Economic Order Quantity, EOQ 200 200 245
Annual holding cost 50 50 61.25
No. of orders per year 5 7.5 6.1224
Annual ordering cost 50 75 61.224
Time between orders, days 50 33.333 40.833
Number of working days 250 250 250
Unit cost of the Item 10 10 10
Total annual cost of inventory 10100 15125 15122.47
als and is interested in
up cost or ordering cost is
r. Each hypodermic needle

y is used, what is the total

is used? Compare the two
Economic Order Quantity, Number of orders (N), and Expected time between orders (T

Number of working days per year 250

T= = = 50 days
Number of orders per year 5

Total cost of inventory (TCI) is the sum of annual ordering cost and holding cost and is

Total annual cost (TAC) is the sum of the Total inventory cost and the total annual mate
Hence, TAC = Rs.100 + 1000 X Rs.10 = Rs.10100.

D EO
2DS 2(1000) (10) TCI = X S+
EOQ = = = 200 Units EOQ 2
H 0.50 1000 200
Annual Demand 1000 TCI = X 10 +
N= = =5 200 2
EOQ 200
pected time between orders (T) are calculated as follows:

g cost and holding cost and is calculated as follows:

cost and the total annual material cost. Therefore, TAC = TCI + Annual Demand X Unit cost

D EOQ
TCI = X S+ XH
EOQ 2
1000 200
TCI = X 10 + X 0.50 = Rs.100
200 2
Parkside Plumbing uses 1,200 of a certain spare part that costs $25 for each order, with an annual
holding cost of $24.
a) Calculate the total cost for order sizes of from 20 to 100 incrementing by 10 units. Plot the cost cu
b) Identify the economic order quantity and consider the implications for making an error in calcula
economic order quantity.

Demand, D 1200 Order size Ordering cost

Ordering cost, O 25 20 1500
Holding cost, H 24 30 1000
Economic Order Quantity, EOQ 50 40 750
50 600
60 500
70 428.571428571
80 375
90 333.333333333
100 300
rder, with an annual

units. Plot the cost curves.

ng an error in calculating

Holding cost Total cost Chart Title

240 1740 2000
1800
360 1360
1600
480 1230 1400
600 1200 1200
1000
720 1220
800
840 1268.57143 600
960 1335 400
200
1080 1413.33333 0
1200 1500 10 20 30 40 50 60 70 80 90 100 110
Orderi ng cost Hol di ng cost Tota l cost
 100 110
st
Henry Vincent’s law office has traditionally ordered ink refills 60 units at a tim
estimates that carrying cost is 40% of the $10 unit cost and that annual dema
240 units per year. The assumptions of the basic EOQ model are though
what value of ordering cost would its action be optimal?

Demand, D 240 "EOQ = 60 = " √(𝟐" O D" /𝐇

Unit cost 10
"60 = " √(𝐎 𝐱 𝟏𝟐𝟎)
Holding cost, H 4
(60)2 = 120 (O) Ther
Economic Order Quantity, EOQ 60
Ordering cost, O 30
lls 60 units at a time. The firm
d that annual demand is about
model are thought to apply. For

= 60 = " √(𝟐" O D" /𝐇) " = " √((𝟐" " 𝐱" O " 𝐱" " 𝟐𝟒𝟎" " )/𝟒) " "

" √(𝐎 𝐱 𝟏𝟐𝟎)

= 120 (O) Therefore ,Ordering cost, O =" " $𝟑𝟎
Southeastern Bell stocks a certain switch connector at its central warehouse for supplyin
The yearly demand for these connectors is 15,000 units. Southeastern estimates its annua
item to be $25 per unit. The cost to place and process an order from the supplier is $75. T
300 days per year, and the lead time to receive an order from the supplier is 2 working day
a) Find the economic order quantity.
b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?

Demand, D 15000 What is the reorder point?

Ordering cost, O 75 Reorder point = Daily dem
Holding cost, H 25
Daily demand = (Annual de
Economic Order Quantity, EOQ 300 The company operates 300
Annual holding cost 3750 Lead time is 2 working days
No. of orders per year 50
Reorder" " point" "=" " 1500
Annual ordering cost 3750 2" "=" " 100" " units
Working days per year 300
Lead time, days 2
Reorder point, Units 100
 warehouse for supplying field service offices.
stern estimates its annual holding cost for this
om the supplier is $75. The company operates
supplier is 2 working days.

is the reorder point?

der point = Daily demand X Lead time (days)
demand = (Annual demand/Working days)

company operates 300 days per year,

d time is 2 working days.
der" " point" "=" " 15000/300 " " x" "
" " 100" " units