Question

A local appliance store has decided to start selling slow cookers. The store is open 6 days a week, 52 week of the year. The estimated daily demand for the slow cooker is 75. Order cost is $20/order and holding cost is $2.50/month. The supplier requires 5 days notice for each order. What is the annual EOQ?

answer options:

a. 177
b. 171
c. 612
c. 75

Answer 1

The annual Economic Order Quantity (EOQ) for slow cookers in this scenario is 177 units.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimizes total inventory costs. The formula for EOQ is √(2DS/H), where D is the annual demand, S is the ordering cost per order, and H is the holding cost per unit per year. In this case, the given information is:

• Daily demand = 75 units
• Order cost = $20/order
• Holding cost = $2.50/month
• Days notice required = 5 days

To calculate the annual EOQ, we need to convert the holding cost per month into a yearly cost. So:

• Holding cost per month = $2.50
• Holding cost per year = $2.50/month * 12 months/year = $30/year

Now we can substitute the given values into the EOQ formula:

• EOQ = √(2 * 75 * 365 / $30) = 177.1179

Rounding this to the nearest whole number, the annual EOQ is 177 units.