Question

You have a product that has annual demand of 2600 , order costs of 180 , and annual holding costs of 10. You want to use the EOQ approach. How many orders will you place per year? Answer to one decimal point.

Answer 1

Using the EOQ formula, it is calculated that the business will place approximately 8.5 orders per year to maintain inventory levels, based on the given demand, order costs, and holding costs.

Step-by-step explanation:

The student is asking a question related to the Economic Order Quantity (EOQ) model, which is a fundamental concept in inventory management and part of operations management within the field of business. To calculate the number of orders that you will place per year using EOQ, the EOQ formula must be applied: EOQ = √((2 * Demand * Order Cost) / Holding Cost). Once the EOQ is calculated, the number of orders per year is found by dividing the annual demand by the EOQ.

Given the annual demand of 2600 units, order costs of $180, and annual holding costs of $10 per unit, we would calculate the EOQ as follows:

EOQ = √((2 * 2600 * 180) / 10) = √(936000 / 10) = √93600 = 306 (rounded to the nearest whole number)

Then, to find out how many orders will be placed per year:

Number of orders per year = Demand / EOQ = 2600 / 306 ≈ 8.5

The calculation shows that approximately 8.5 orders will be placed per year. Remember to always round to the nearest whole number when it comes to the number of orders since you cannot place a fraction of an order in real life.