Question

E. O. Cue, Materials Management Specialist for Cue's Custom Billiard Balls, periodically needs to place orders for ivory, one of the raw materials used in producing billiard balls. Mr. Cue knows that manufacturing uses ivory at a rate of 50 kilograms each day, and that it costs $ .04 per day to carry a kilogram of ivory in inventory. He also knows that the clerical costs for placing an order for ivory are $100.00 per order, and that the lead time between placing and receiving each order is four days. Assume 250 days in one year. What is Mr. Cue's economic order quantity (EOQ) for ivory?

Answer 1

Answer: 500kg

Explanation:

Economic Order Quantity (EOQ) is the amount of units that should be added by a company to its inventory so.as to reduce total inventory cost.

From the question, the economic order quantity will be calculated as:

Drmqnd per year will be:

= 250 days/$0.04

= 12500 kg/year

The annual carrying cost per unit will be:

= $0.04/250

= $10/year

Ordering cost = 100

EOQ =[√(2×12500×100)/10]

= √2500000/10

= ✓250000

= 500 kg