Question

The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year. 1. Use the information in the scenario above. What is the economic order quantity for the XO-01

Answer 1

Answer:

1. 200 units

2. Greater than 30 times per year.

Explanation:

This is an incomplete question. The concluding part I.e question 2 reads:

2. How many times per year must Talbot order the XO-01 when orders are placed using the EOQ quantity.

1. The formulae for economic order quantity is;

EOQ = √ 2 × Annual demand × Ordering cost / Carrying cost

Where,

A = Annual demand = 8,000 units

O = Ordering cost = $50

C = Carrying cost = $20

Therefore,

EOQ = √ 2 × 8,000 × 50 / 20

EOQ = 200 units

The economic order quantity for the XO-01

2. To get the number of orders per year, we'll use the formula

Number of orders per year = D/Q

Where,

D = Annual demand = 8,000 units

Q = Economic order quantity = 200 units

= 8,000 / 200

= 40 orders.

It therefore means that Talbot must order the XO-01 greater than 30 times per year when orders are placed using the EOQ quantity.