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Tutorial 6.pdf
1. Tutorial 6
1-)EOQ analysis Enviro Exhaust Company purchases 1,200,000 units per year of a
component with a purchase price of $50. The fixed cost is $15 per order, and the
carrying cost is 30% of the purchase price.
a. Calculate the EOQ based on the data given.
b. Calculate the EOQ if the order cost is zero. What is the implication to the firm if
there is a decrease in the order cost?
Answer:
a. EOQ= 1550 Units
b. Calculate the economic order quantity (EOQ) if the order cost is zero. What is the implication
to the firm if there is a decrease in the order cost?
EOQ = 0
EOQ decreases as ordering cost decreases. It will be more cost effective for the firm to place
more orders and keep less in stock (reducing carrying cost) provided that no stockouts occur.
2-)EOQ, reorder point, and safety stock Outdoor Living Manufacturers uses 1,000 units
of a product per year. Its fixed cost is $28 per order, while the carrying cost is $5 per
unit per year. The lead time is five days and, therefore, the firm keeps seven days’
usage in inventory as safety stock. (Note: Use a 365-day year where required.)
a. Calculate the EOQ and the average inventory.
b. How many orders will Outdoor Living Manufacturers place during one year?
c. When should Outdoor Living Manufacturers place its orders?
d. Suppose Outdoor Living Manufacturers does not keep safety stock. Explain the
changes, if any, which will occur in (1) order cost, (2) carrying cost, (3) total
inventory cost, (4) reorder point, and (5) EOQ.
a. EOQ= 106 Units, average inventory 106/2 = 53 units
b. Number of orders = 1000/106 = 9.43 Outdoor Living Manufacturers will have to place 10
orders during one financial year provided that all
costs remain unchanged.
c. Reorder point = Days of lead time Daily usage + Safety stock = 5 (1,000 / 365) + [7
(1,000 / 365)] = 32.88units Order should be placed when inventory reaches 33 units
d. Order cost: The order cost is fixed and will not change. Carrying cost: Remain
unchanged. Total inventory cost: May increase if stock outs occur. Reorder point: The
reorder point will decrease from 33 units to 14 units. EOQ: EOQ will not change as
safety stock does not influence the EOQ.
![Tutorial 6
1-)EOQ analysis Enviro Exhaust Company purchases 1,200,000 units per year of a
component with a purchase price of $50. The fixed cost is $15 per order, and the
carrying cost is 30% of the purchase price.
a. Calculate the EOQ based on the data given.
b. Calculate the EOQ if the order cost is zero. What is the implication to the firm if
there is a decrease in the order cost?
Answer:
a. EOQ= 1550 Units
b. Calculate the economic order quantity (EOQ) if the order cost is zero. What is the implication
to the firm if there is a decrease in the order cost?
EOQ = 0
EOQ decreases as ordering cost decreases. It will be more cost effective for the firm to place
more orders and keep less in stock (reducing carrying cost) provided that no stockouts occur.
2-)EOQ, reorder point, and safety stock Outdoor Living Manufacturers uses 1,000 units
of a product per year. Its fixed cost is $28 per order, while the carrying cost is $5 per
unit per year. The lead time is five days and, therefore, the firm keeps seven days’
usage in inventory as safety stock. (Note: Use a 365-day year where required.)
a. Calculate the EOQ and the average inventory.
b. How many orders will Outdoor Living Manufacturers place during one year?
c. When should Outdoor Living Manufacturers place its orders?
d. Suppose Outdoor Living Manufacturers does not keep safety stock. Explain the
changes, if any, which will occur in (1) order cost, (2) carrying cost, (3) total
inventory cost, (4) reorder point, and (5) EOQ.
a. EOQ= 106 Units, average inventory 106/2 = 53 units
b. Number of orders = 1000/106 = 9.43 Outdoor Living Manufacturers will have to place 10
orders during one financial year provided that all
costs remain unchanged.
c. Reorder point = Days of lead time Daily usage + Safety stock = 5 (1,000 / 365) + [7
(1,000 / 365)] = 32.88units Order should be placed when inventory reaches 33 units
d. Order cost: The order cost is fixed and will not change. Carrying cost: Remain
unchanged. Total inventory cost: May increase if stock outs occur. Reorder point: The
reorder point will decrease from 33 units to 14 units. EOQ: EOQ will not change as
safety stock does not influence the EOQ.](https://image.slidesharecdn.com/tutorial6-230529150247-0f686363/85/Tutorial-6-pdf-1-320.jpg)
