Question

A manager of a large medical supply house that operates 50 weeks per year and 4 days per week, has decided to implement a periodic review system for all class C items. One such item has the following characteristics:

Demand = 24,000 units / year
Order cost = $48 / order
Holding cost = $5 / unit / year

If the manager wishes to minimize total cost (thereby approximating the EOQ), what should be P, the number of workdays between orders?
Round your answer to the nearest whole number.

Answer 1

To minimize total cost and approximate the EOQ, the manager should determine the number of workdays (P) between orders using the periodic review system. The formula to calculate EOQ is sqrt((2 * Demand * Order cost) / Holding cost) and P can be determined by dividing the number of workdays in a year by the EOQ.

Step-by-step explanation:

To approximate the Economic Order Quantity (EOQ), the manager should determine the number of workdays (P) between orders. The EOQ formula is sqrt((2 * Demand * Order cost) / Holding cost). In this case, Demand is 24,000 units/year, Order cost is $48/order, and Holding cost is $5/unit/year. Plugging these values into the formula will give you the EOQ.

However, to minimize total cost and approximate the EOQ, you can consider using the periodic review system. To determine the number of workdays (P) between orders, you need to divide the number of workdays in a year by the EOQ, and then round to the nearest whole number. In this case, the operation is 50 weeks/year and 4 days/week. So, P = (50 * 4) / EOQ.