Question

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?

Answer 1

Answer:

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 $EOQ = \sqrt{\frac{2\times demand \times order\ cost}{holding \ cost}}$

$EOQ = \sqrt{\fac{2\times 250 \times 20}{1}} =100 units$

b) number of order for each year $= \frac{annual/ demand}{EOQ}$

                                                    $= \frac{250}{100} = 2.5$order/ year

c) average inventory $= \frac{Q}{2} = \frac{100}{2} = 50 units$