Question
Question
Question
Patriot Company predicts that it will use 360,000 gallons of material during the year. The material is
expected to cost 5 per gallon. Patriot anticipates that it will cost 72 to place each order.
a. Determine the most economical order quantity by using the EOQ formula.
b. Determine the total cost of ordering and carrying at the EOQ point.
Solution:
a)
2 × 72 × 360,000
𝐸𝑂𝑄 = √
4
51,840,000
𝐸𝑂𝑄 = √
4
𝐸𝑂𝑄 = √12,960,000
b)
𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑚𝑎𝑛𝑑 360,000
𝐴𝑛𝑛𝑢𝑎𝑙 𝑂𝑟𝑑𝑒𝑟 = = = 100 𝑂𝑟𝑑𝑒𝑟
𝑃𝑒𝑟 𝑂𝑟𝑑𝑒𝑟 3600
𝟏
𝑪𝒂𝒓𝒓𝒚𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 = {( × 𝑬𝑶𝑸) + 𝑺𝒂𝒇𝒆𝒕𝒚 𝑺𝒕𝒐𝒄𝒌} × 𝑪𝒂𝒓𝒓𝒚𝒊𝒏𝒈 𝒄𝒐𝒔𝒕 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕
𝟐
𝟏
𝑪𝒂𝒓𝒓𝒚𝒊𝒏𝒈 𝑪𝒐𝒔𝒕 = {( × 𝟑𝟔𝟎𝟎) + 𝟎} × 𝟒
𝟐