Question

An industrial bakery purchases flour in 50lb. bags from a mill at $10 per bag. The bakery owner estimated that the amount used is 100 bags per week. The ordering cost is $20 per order and carryIng cost is 15% of price. Assume 50 weeks in a year. a. What would be the EOQ?

Answer 1

The Economic Order Quantity (EOQ) for the industrial bakery is approximately 365 bags, which is the optimal number of bags to order to minimize the total costs associated with inventory.

Step-by-step explanation:

Economic Order Quantity (EOQ) Calculation

The Economic Order Quantity (EOQ) is the number of units 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 (typically per year)
• S is the ordering cost per order
• H is the carrying cost per unit, per year

For the industrial bakery, we have the following information:

• Demand (D) = 100 bags per week * 50 weeks = 5000 bags per year
• Ordering cost (S) = $20 per order
• Carrying cost (H) = 15% of price = 15% of $10 = $1.50 per bag, per year

Inserting these values into the EOQ formula gives us:

EOQ = √((2 * 5000 * 20) / 1.5) = √(200000 / 1.5) = √(133333.33) = 365 bags (approximately)

Therefore, the EOQ for the bakery is approximately 365 bags.