Question

Compute for the Economic Order Quantity (EOQ)

1. Consider a retail clothing shop that carries a line of ladies’ skirts. The shop sells 15,000 shirts each year. It costs the company $40 per year to hold a single shirt in the inventory, and the fixed cost to place an order is $30.

2. Consider a retail clothing shop that carries a line of men’s shirts. The shop sells 15,000 shirts each quarter. It costs the company $40 per year to hold a single shirt in the inventory, and the fixed cost to place an order is $30.

3. Cathy’s Entertainment Store stocks a wireless microphone that is a popular seller. Semi-annual demand is 3,000 units, the ordering cost is $15, and the inventory holding cost is $2 per year.

Answer 1

The Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity in inventory management. It considers factors such as annual demand, ordering cost, and holding cost per unit. We can apply the EOQ formula to calculate the optimal order quantity for each given scenario.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is a basic inventory management technique used to determine the optimal order quantity to minimize total inventory costs. It can be calculated using the formula:

EOQ = √[(2 × Annual demand × Ordering cost) / Holding cost per unit]

Let's apply the formula to each scenario:

1. For the retail clothing shop selling ladies' skirts, if the annual demand is 15,000 shirts, the ordering cost is $30, and the holding cost per unit is $40, the EOQ would be calculated as follows:
   EOQ = √[(2 × 15,000 × 30) / 40]
   EOQ = 300 units
2. For the retail clothing shop selling men's shirts, if the quarterly demand is 15,000 shirts, the ordering cost is $30, and the holding cost per unit is $40, the EOQ would be calculated as follows:
   EOQ = √[(2 × (15,000 × 4) × 30) / 40]
   EOQ = 600 units
3. For Cathy's Entertainment Store stocking wireless microphones with semi-annual demand of 3,000 units, an ordering cost of $15, and a holding cost per unit of $2, the EOQ would be:
   EOQ = √[(2 × 3,000 × 15) / 2]
   EOQ = 300 units