Question

A large law firm uses an average of 40 boxes of copier paper a day. The firm operates 260 days a year. Storage and handling costs for the paper are $30 a year per box, and it costs approximately $60 to order and receive a shipment of paper.
1. What order size would minimize the sum of annual ordering and carrying costs?2. Compute the total annual cost using your order size from the previous part.3. Except for rounding, are annual ordering and carrying costs always equal at the EOQ?

Answer 1

1. Ordering 204 boxes will minimize the sum of annual ordering and carrying costs

2. Total cost will be $6118.82

3. Yes,annual ordering and carrying costs always equal at the EOQ.

Explanation:

D = 40 boxes per for 260 days

   = $40 \times 260 = 10400$ boxes

S = $60

H = $30

1.  $Q = \sqrt{\frac{2DS}{H} }$

        $= \sqrt{\frac{2 \times 10400 \times 60}{30} }$

        = 203.96

Q = 204 boxes

2. $TC = \frac{Q \times H}{2} + \frac{D \times S}{Q}$

           $= \frac{204 \times 30}{2} + \frac{10400 \times 60}{204}$

            $= 3060 + 3058.82$

TC= $6118.82