Question

SmartSC purchases from Supplier A are priced at $30 each and used at the rate of 600 units per month. Components purchased from supplier B are priced at $6 each and are used at the rate of 3000 units per year. The annual holding cost is 30 percent of the item’s value. If SmartSC purchases separately from the two suppliers, the fixed ordering cost for supplier A is 40 dollars each time. What is the economic order quantity for supplier A?
a) 125
b) 200
c) 253
d) 367

Answer 1

Answer:

SmartSC

The economic order quantity (EOQ) for Supplier A is:

= c) 253

Explanation:

a) Data and Calculations:

                               Supplier A       Supplier B

Price per unit                $30                 $6

Annual unit demand 7,200            3,000

Annual holding cost      $9                 $1.80 ($6 * 30%)

Ordering cost              $40

Economic order quantity for Supplier A = square root of (2 * D * S)/H

where D = Annual demand in units

S = Ordering cost per order

H = Holding cost per unit

= square root of  (2 * 7,200 * $40)/$9

= square root of 64,000

= 253