Answer:
Annual demand (D) =7,000 gallons
Ordering cost per order (Co) = $3,600
Holding cost per item per annum (H) = $50
EOQ = √<u>2DCo</u>
H
EOQ = √<u>2 x 7,000 x $3,600</u>
$ 50
EOQ = 1,004 units
Q = 1,004
Total minimum inventory cost
= Total ordering cost + Total holding cost
= <u>DCo </u> + QH
Q 2
= <u>7,000 x $3,600</u> + <u>1,004 x $50</u>
1,004 2
= $25,099.60 + $25,100
= $50,199.60
Re-order point
= Maximum usage per day x Maximum lead time
= <u>7,000 gallons</u> x 10 days
310 days
= 226 units
Explanation:
EOQ is a function of square root of 2 multiplied by annual demand and ordering cost per order divided by holding cost per item per annum.
Total minimum inventory cost is the aggregate of total ordering cost and total holding cost.
Re-order point is the product of maximum usage per day and maximum lead time.
Maximum usage per day is annual demand divided by the number of working days in a year.
