Question

ElectricBikes R° Us imports batteries for its bikes from a supplier in humi every month. They place an order at the beginning of each month with a fixed orderny cost of $500 (including tariff, shipment and material cost). The cost of each battery is 550 it takes A month to receive the delivery. The monthly demand for bikes land hence for the battery) is approximately normally distributed with a mean of 1000 units and a standard deviation of 100 units. The percentage of cost attributed to holding is 20% of the item cost per year. Assume only 10 months in a year for easier calculations

What is the economic order quantity (EOQ)?

Answer 1

The Economic Order Quantity (EOQ) for ElectricBikes R° Us is calculated using the formula EOQ = √((2DS)/H) and based on the provided demand, order cost, and holding cost. The correct EOQ for ordering batteries is approximately 426 batteries.

Step-by-step explanation:

The student is asking for the calculation of the Economic Order Quantity (EOQ) for ElectricBikes R° Us when ordering batteries from their supplier. The EOQ formula is given by:

EOQ = √((2DS)/H), where

Given the monthly demand is normally distributed with a mean of 1000 and for easier calculations we're assuming a 10-month year, the annual demand D = 1000 batteries * 10 months = 10,000 batteries. The fixed order cost S = $500. The holding cost is 20% of the cost of each battery, so H = 20% of $550 = $110 per battery per year.

Thus, EOQ = √((2 * 10,000 * 500) / 110) = √((20,000,000) / 110) ≈ √181818.18 ≈ 426.4 batteries. Therefore, the economic order quantity is approximately 426 batteries.