Question

A manufacturer has a steady annual demand for 30,380 cases of sugar. It costs $10 to store 1 case for 1 year, $31 in setup cost to produce each batch, and $17 to produce each case. The manufacturer is trying to determine the optimal order quantity for each batch. What is the Economic Order Quantity (EOQ) for this manufacturer?

Answer 1

The Economic Order Quantity (EOQ) for this manufacturer is approximately 771.44 cases per batch.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity for a manufacturer. The formula for EOQ is:

EOQ = sqrt((2 × Setup cost × Annual Demand) / Holding cost)

In this case, the setup cost is $31, the annual demand is 30,380 cases, and the holding cost is $10 per case per year. Plugging in these values into the formula:

EOQ = sqrt((2 × $31 × 30,380) / $10) = sqrt((2 × 31 × 30,380) / 10) = sqrt(594,440) = 771.44

Therefore, the Economic Order Quantity (EOQ) for this manufacturer is approximately 771.44 cases per batch.