Suppose the cafeteria's current ordering policy is to purchase beans every 13 weeks. The manager says that
Question:
Suppose the cafeteria's current ordering policy is to purchase beans every 13 weeks. The manager says that the ordering cost of S = $50 is just a guess. Therefore, he insists on using the current policy. Find the range of S for which the EOQ he found in part (a) would be preferable (in terms of lower total replenishment and transportation costs) to the current policy of buying beans every 13 weeks.
to. Economic order quantity is the optimal order size to minimize all inventory costs. The formula is written as
EOQ = [2FD/C]^1/2
Where C = Cost of maintenance per unit per year = In our problem, the cost of maintenance is 20% of the purchase price
which is 0.20(65 units*$4*52) = 2704
F=Fixed cost per order that is $50 for procedures and others
D=Demand in units per year is 65*52 =3380
Solving the above formula = ((2*50*3380)/2704)^(1/2) = (125)^(1/2) = 11.18
(b) Optimum number of orders per year
The optimal order quantity (Q*) is found when annual holding cost = ordering cost
solving the above equation = Sqrt ((2*3380*50)/0.8) = 650
maintenance cost per unit per year = 0.2*4 =0.8
What is the optimal interval ( in weeks ) between orders?
T* = Q* /D = 650 /3380 = 0.1923 years
Assuming 52 weeks
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins