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+--- Thread: EOQ - Exercise for revision (/thread-eoq-exercise-for-revision)
EOQ - Exercise for revision - hinanifaf - 08-31-2010
Question
Ice Cold ltd buys 50000 boxes of ice cream cones every two months to service
steady demand for the product. Order costs are 100per order,carrying costs are
.40cents per box.
1. Determine the total cost on lots 20000,60000 and 300000 per order.
2. Based on 1.above what is your optimum order quantity? And why?
3. Using a formula what is the optimum order quantity?
4. What is the ordering cost?
5. What is the carrying cost?
6. What is the total cost?
7. The vendor now offers Icecold ltd a quantity discount of .02cent per box if it buys
cones in order sizes of 10000 boxes.
Now should Icecold ltd take advantage of the quantity discount? Show your
calculations.
My solution
1. Inventory order leve 20000 60000 300000
Carrying cost Q/2 X C 4000 12000 60000
Ordering cost D/Q X O 250 83 17
Total Inventory cost 4250 12083 60017
2. Optimum order level is where the cost is at a minimum. Minimum cost is 4250, at this,
cost is associated with the order level of 20000 boxes.
3. EOQ = (2XDXO/C = 2 X 50000 X 100/.40) square root = 5000 boxes
4. Ordering Cost = D/Q X O = 50000/5000 X 100 = 1000
5. Carrying Cost = Q/2 X C = 5000/2 X .4 = 1000
6. Total inventory cost = OC + CC = 1000 + 1000 = 2000
Any comments from your side please.
regards
flora