Question

Ones surgicenter uses 90,000 bags of iv solution annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the center $1.50, inventory carrying costs are 20 percent, and the cost of placing an order with its supplier is $15. Assume 365 operational days per year.What is the Economic Order Quantity (EOQ) for the IV solution bags used by the surgicenter annually?

a) 3,000 bags
b) 4,000 bags
c) 5,000 bags
d) 6,000 bags

Answer 1

To calculate the Economic Order Quantity (EOQ) for the IV solution bags used by the surgicenter annually, the EOQ formula is used with a demand (D) of 90,000 bags, an ordering cost (S) of $15, and a holding cost per unit (H) of $0.30. The result is an EOQ of 3,000 bags. Therefore, the answer is option (a) 3,000 bags.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is the number of units that a company should add to inventory with each order to minimize the total costs of inventory—such as holding costs, order costs, and shortage costs. The formula to calculate EOQ is:

EOQ = √((2DS)/H)

where:

• D is the demand in units (for the surgicenter, this is 90,000 bags annually),
• S is the ordering cost per order (for the surgicenter, this is $15),
• H is the holding cost per unit per year (for the surgicenter, this is 20% of the cost per bag, which is 20% × $1.50 = $0.30).

Plugging in the values we get:

EOQ = √((2 × 90,000 × 15)/0.30)
EOQ = √((2,700,000)/0.30)
EOQ = √(9,000,000)
EOQ = 3,000 bags

Therefore, the EOQ for the IV solution bags used by the surgicenter annually is 3,000 bags, which corresponds to option (a).