Question

Bakery A uses 80 bags of flour each month at a constant rate. A $15 fixed ordering cost is charged for each replenishment. Holding one bag of flour for one month costs Bakery A $1.75. The EOQ Bakery A should adopt =

The corresponding cost C(Q) = $

Using the EOQ calculated above,

Bakery A will place an order every= days

Answer 1

The Economic Order Quantity (EOQ) is a formula used to determine the optimal amount of inventory to order. In this case, Bakery A should adopt an EOQ of approximately 37 bags of flour per order. Bakery A should place an order every 0.4625 months, which is approximately 13.88 days.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is a formula used to determine the optimal amount of inventory to order in order to minimize holding costs and ordering costs. The formula is given by:

EOQ = sqrt((2 * D * S) / H)

Where D is the annual demand, S is the ordering cost per order, and H is the holding cost per unit per year.

In this case, Bakery A uses 80 bags of flour each month at a constant rate. The ordering cost is $15 per order and the holding cost is $1.75 per bag per month. We can calculate the EOQ as follows:

EOQ = sqrt((2 * 80 * 15) / 1.75) = sqrt(2400 / 1.75) = sqrt(1371.43) ≈ 37.03

Therefore, Bakery A should adopt an EOQ of approximately 37 bags of flour per order.

To calculate how often Bakery A should place an order, we need to determine the time it takes to use up the EOQ quantity. Given that Bakery A uses flour at a constant rate of 80 bags per month, the order will last approximately 37 bags / 80 bags per month = 0.4625 months.

Therefore, Bakery A should place an order every 0.4625 months, which is approximately 13.88 days.