Question

A local distributor for a national tire company expects to sell approximately 10,110 tires of a certain size and tread design next year. Annual carrying cost is $15 per tire and ordering cost is $65. The distributor operates 292 days a year.

What is the EOQ? (Round your answer to a whole number.)

Answer 1

The Economic Order Quantity (EOQ) for the local distributor, based on the provided annual demand, ordering cost, and carrying cost, is approximately 183 tires. This is the number of tires that should be ordered each time to minimize inventory costs.

Step-by-step explanation:

The student has asked for the calculation of the Economic Order Quantity (EOQ), which is a formula used in operations management to determine the optimal order size that minimizes the total inventory costs. The EOQ formula is given by the square root of (2DS/H), where D is the annual demand, S is the ordering cost per order, and H is the annual holding cost per unit.

To calculate EOQ for the local distributor:

• Annual demand (D) = 10,110 tires
• Ordering cost (S) = $65
• Carrying cost (H) = $15 per tire

Plugging these values into the EOQ formula:

EOQ = sqrt((2 * 10110 * 65) / 15)

The result is approximately 183 tires. Therefore, the distributor should order 183 tires each time to minimize their total inventory costs.