Chapter 5 EOQ
Chapter 5 EOQ
Chapter 5 EOQ
EOQ
Length of order cycle =
(as fraction of a year) R
EOQ number of days in a year
Length of order cycle =
R
(as number of days)
*
# Orders / Year = R
EOQ
Basic EOQ Model
Annual Annual
Total cost = carrying + ordering
cost cost
EOQ R I
TC = H +
2 EOQ
Carrying Costs
Ordering Costs
A) EOQ =60
=SQRT(2*720*500/200)
B) TC(EOQ) =(720*1000)+(720/60*500)+(60/2*200) =$732,000
C) TC(Q1) =$588,142.86
=(720*800)+(720/70*500)+(70/2*200)
D) TC(Q2) =$445,600
=(720*600)+(720/100*500)+(100/2*200)
E) TC(Q3) =$377,400
=(720*500)+(720/150*500)+(150/2*200)
F) # Orders / Year =4.8
=720/150
A mail-order house
# Boxes Unit Price
uses 18000 boxes
a year. Carrying 500-999 $125
costs are $ 50 per
box per year and 1000-1499 $120
ordering costs are
$86. The basic 1500+ $110
price is $140.
1- What is the EOQ?
2- How many times per year does the
company reorder?
3- Which quantity the company must
buy to reduce the total cost?