Eugene and Scott are selling flower bulbs for a school fundraiser. Customers can buy bags of windflower bulbs and packages of cr
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Answer:
a) Q = 122 units/order
b) Number of orders = 2.05 orders/year
c) Average inventory = 61 units
d) Ordering costs = 125 $/order
Step-by-step explanation:
The economic quantity order (EOQ) formula allow us to minimize the ordering cost, in function of the demand, ordering cost and holding cost.
The EOQ formula is:
where:
D: demand in units/year
S: Order costs, per order
H: holding or carrying cost, per unit a year
a) In this case:
D: 250 u/year
S: 30 $/order
H: 1 $/year-unit
b) If we have a demand of 250 units/year and we place orders of 122 units, the amount of orders/year is:
c) We assume that there is no safety stock, so everytime the stock hits 0 units, a new order enter the inventory.
In this case, the average inventory can be estimated as the average between the inventory when a new order enters the inventory (122 u.) and the inventory right before a order enters (0 u.)
The average inventory is 61 units.
d) If 250 units is the optimal quantity for an order, it means it is equal to the EOQ. We can calculate the new ordering costs as: