Question

A firm that stocks lightbulbs gathers the following information: Demand = 19,500 units per year, Ordering cost = $25 per order, Holding cost = $4 per unit per year. The firm wants to calculate the: a) EOQ for the lightbulbs. b) Annual holding costs for the lightbulbs. c) Annual ordering costs for the lightbulbs.

Answer 1

Explanation:

Demand = 19,500 units per year (D)

Ordering cost = $25 per order (O)

Holding cost = $4 per unit per year (C)

a)
`EOQ=\sqrt{ (2* D* O)/(C)}`

`EOQ=\sqrt{ (2* 19,500* 25)/(4)}`

=
`\sqrt{(975000)/(4)}`

=
`√(243,750)`

= 493.71044 ≈ 494

b) Annual holding cost =
`4*((Q)/(2))`

=
`4*((494)/(2))`

= 4 × 247

= 988

c) Annual ordering cost =
`O*((D)/(Q) )`

=
`25*((19,500)/(494) )`

= 25 × 39.47

= 986.75

AOQ = 494

Annual holding cost = 988

Annual ordering cost = 986.75