Question 1:
EOQ = Q = √(2(19,500)(25))/4 = 493.71 = 494 units
b) Annual holdings costs = [Q/2] H = [494/2](4) = $988
c) Annual ordering costs = [D/Q]S = [19500/494](25) = $987
Question 2:
a) EOQ = 2DS/H = 2 (250) 20/1 = 100 units
b) Number of orders per year = D/Q =250/100 = 2.5 orders per year.
c) Average inventory = Q/2 = 100/2 = 50 units
d) Given an annual demand of 250, a carrying cost of $1, and an order quantity of 150, Cotteleer Electronics must determine what the ordering cost would have to be for the order policy of 150 units to be optimal.
To find the answer to this problem, we must solve the traditional economic order quantity equation for the ordering cost. As you can see in the calculations that follow, an ordering cost of $45 is needed for the order quantity of 150 units to be optimal.