Harvey Hotels has provided a defined benefit pension plan for its employees for several years. At the end of the most recent yea
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Answer:
a) EOQ ≈ 250
b) POQ = 1.59 ≈ 2 months
c) Cost of EOQ = 1275 USD
Cost of POQ = 937.5 USD
Explanation:
Again, the essential data is not provided in this question but I have found this question on internet and I will share the required data here in this solution:
a) EOQ = Economic Order Quantity:
FIrst of all, we have to calculate EOQ and for that we have following formula:
Holding Cost = 0.75
Setup Cost = 150
So, here's the required data which is missing in the question:
Month 1 2 3 4 5 6 7
Requirement 100 150 200 150 100 150 250
Now, we are good to go:
So, from the above data we will calculate the Demand:
Demand (D) = Sum of requirement / Total Time Period
D = 100 + 150 + 200 + 150 + 100 + 150 + 250/ 7
D = 157.14
Formula for EOQ:
EOQ =
S = Setup Cost = 150
D= Demand = 157.14
H = Holding Cost = 0.75
Let's plug in the values:
EOQ =
EOQ = 250.71
EOQ ≈ 250
So, the economic order quantity for the above given data is 250 units.
b) POQ = Periodic Order Quantity
Periodic Order Quantity = Economic Order Quantity/ Demand
POQ = 250/157.14
POQ = 1.59 ≈ 2 months
Now, as we have both POQ and EOQ at hand. Next step is to calculate the cost of each plan as mentioned in the question. For which we need MRP of each plan.
1. Cost of Economic Order Quantity:
First of all let me write down the MRP = Materials Requirement Planning Data for EOQ:
Requirement 100 150 200 150 100 150 250
Available 0 150 0 50 150 50 150
Ordered 250 0 250 250 0 250 250
End Inventory 150 0 50 150 50 150 150 700
Now, Let's Calculate the Cost of EOQ:
Setup Cost = Number of Orders x Setup Cost Given
Setup Cost = 5 x 150
Setup Cost = 750 USD
Holding Cost = Holding Cost per item given x Number of Inventory held
Holding Cost = 0.75 x 700
Holding Cost = 525 USD
Now, Calculate the Total Cost of EOQ:
Total Cost of EOQ = Setup Cost + Holding Cost
Total Cost of EOQ = 750 + 525
Totol Cost of EOQ = 1275 USD
2. Cost of POQ:
Similarly, we have to calculate the Cost of POQ. For that, we need MRP of POQ as well:
MRP for POQ:
Requirement 100 150 200 150 100 150 250
Available 0 150 0 150 0 150 0
Ordered 250 0 350 0 250 0 250
End Inventory 150 0 150 0 150 0 0 450
Setup Cost = Number of Orders x Setup Cost Given
Setup Cost = 4 x 150
Setup Cost = 600 USD
Holding Cost = Holding Cost per item given x Number of Inventory held
Holding Cost = 0.75 x 450
Holding Cost = 337.5 USD
Total Cost of EOQ = Setup Cost + Holding Cost
Total Cost of EOQ = 600 + 337.5
Totol Cost of EOQ = 937.5 USD