Question

Zip Games purchases blank DVD disks onto which it copies its software for sale through its mail

order operation. A disk costs Zip $.25. Processing an order for more disks cost $16. Zip uses 62,000
disks annually, and the company has a 24% cost of capital.
a. Find the optimal order quantity.
b. How many orders are placed annually?
c. How frequently will orders be placed?

Answer 1

a. 575 units

b. 107.83 orders

c. 3.38 days

Step-by-step explanation:

a. The computation of the economic order quantity is shown below:

=
`\sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

where,

Annual demand = 62,000 disk

Ordering cost = $16

Carrying cost = $0.25 × 24% = $6

Now put these values to the above formula

So, the value would equal to

=
`\sqrt{\frac{2* \text{62,000}* \text{\$16}}{\text{\$6}}}`

= 575 units

b. The number of orders would be equal to

= Annual demand ÷ economic order quantity

= 62,000 ÷ 575 units

= 107.83 orders

c. The frequently order would be

= Total number of days in a year ÷ number of orders in a year

= 365 days ÷ 107.83 orders

= 3.38 days