Question

g An automobile dealer expects to sell 529 cars a year. The cars cost $11,000 plus a fixed charge of $500 per delivery. If it costs $1000 to store a car for a year, find the order size and the number of orders that minimize inventory costs.

Answer 1

Order size = 23 cars

The number of orders = 23

Step-by-step explanation:

The economic order quantity (EOQ) is the order size that reduces the balance of holding and ordering cost. It is to be noted that at EOQ, the carrying cost is equal to the holding cost.

The EOQ is computed as shown below;

= √ 2 × Co × D)/Ch

Co = Ordering cost

D = Annual demand

Ch = Carrying cost

EOQ = √ 2 × 500 × 529 / 1,000

EOQ = 23

Number of cars to be ordered per time, I.e optimal order size = 23

Order size = 23 cars

2. The number of times orders should be placed per year would be calculated as;

Number of orders = Annual demand / Order size

Number of orders = 529 / 23

Number of orders = 23