Question

​A factory uses 625 tons of steel per year to make reinforced rods. Its ordering costs are $40 per order, and its holding costs are $5 per ton. According to the economic order quantity (EOQ) model, approximately how often does the company have to place an order to maintain optimal order quantity?

Answer 1

The company has to place an order approximately once every 59 days to maintain optimal order quantity.

Step-by-step explanation:

Please find below for the explanations and calculations:

EOQ = square root of [(2* Order Cost per one order * annual demand) / Holding Cost per bracket per year ] = square root of [ (2*40*625)/5] = 100 tons.

Orders made annually give EOQ = Annual demand / EOQ = 625 / 100 = 6.25 orders

Assuming a factor working for 365 days per year, the frequency of the orders made is 365/6.25 days or 59 days.