Question

Joe Henry's machine uses 2,520 brackets during the course of a year. These brackets are purchased from asupplier 90 miles away. The following information is known about the brackets:

Annual demand 2.520
Holding cost per brackets per year $ 1.40
Orde cost per prder $18.25
Lead time 2 days
Working days per year 250

What is the EOQ? ____units

Answer 1

To find the Economic Order Quantity (EOQ) for Joe Henry's machine brackets, the EOQ formula is used with given values resulting in an EOQ of 256 units. This quantity allows the minimization of holding and ordering costs.

Step-by-step explanation:

The question asks how to calculate the Economic Order Quantity (EOQ), which is a critical figure in inventory management that minimizes the sum of holding cost and ordering cost. To calculate the EOQ, we use the formula:

EOQ = √((2 * Demand * Order Cost) / Holding Cost)

Given:

• Annual demand (D) = 2,520 brackets
• Holding cost per bracket per year (H) = $1.40
• Order cost per order (S) = $18.25

Plugging these values into the EOQ formula gives us:

EOQ = √((2 * 2,520 * $18.25) / $1.40)

Calculating these values:

EOQ = √((2 * 2,520 * 18.25) / 1.40)

EOQ = √(91,800 / 1.40)

EOQ = √65,571.43

EOQ = 256 units (rounded to the nearest whole number)

The Economic Order Quantity for Joe Henry's machine brackets is therefore 256 units. This figure represents the ideal number of brackets to order at one time to minimize total inventory costs, factoring in both the holding cost and the order cost.