Question

A produce distributor uses 4800 packing crates per year. The manager has assigned an annual carrying cost of $6 per crate. Ordering cost is $50.

(a) How much is the order quantity based on EOQ model?

(b) How much is the total cost using EOQ model?

Answer 1

The order quantity based on the EOQ model is approximately 491 crates per order. The total cost using the EOQ model is approximately $486.11.

Step-by-step explanation:

For the EOQ (Economic Order Quantity) model, we can use the formula:

EOQ = sqrt((2 * Annual Demand * Ordering Cost) / Carrying Cost per Unit)

From the given information, the annual demand is 4800 crates, the ordering cost is $50, and the carrying cost is $6 per crate. Substituting these values into the formula:

EOQ = sqrt((2 * 4800 * 50) / 6) ≈ 490.8

Therefore, the order quantity based on the EOQ model is approximately 491 crates per order.

The total cost using the EOQ model can be calculated as:

Total Cost = (Annual Demand / EOQ) * Ordering Cost + (EOQ / 2) * Carrying Cost per Unit

Substituting the given values:

Total Cost = (4800 / 491) * 50 + (491 / 2) * 6 ≈ $486.11

Therefore, the total cost using the EOQ model is approximately $486.11.