Question

Robo Hot Inc., is a company that markets electric heaters to hospitals. Mr. Heatmizer, it's CEO, would ike to reduce its inventory cost by determining the optimal number of electric heaters to obtain per order. The annual demand is 100,000 units and the ordering cost is $10 per order. The carrying cost per unit is $2.00. Using these figures, calculate the expected number of orders per year.

Answer 1

The company should place approximately 100 orders per year to maintain optimal inventory levels and reduce costs, according to the Economic Order Quantity model.

Step-by-step explanation:

To determine the optimal number of electric heaters that should be ordered per year to minimize inventory cost for Robo Hot Inc., we can use the Economic Order Quantity (EOQ) model. The formula for EOQ is:

EOQ = \(\sqrt{(2DS)/H}\)

where:
D = annual demand,
S = ordering cost per order,
H = carrying cost per unit per year.

In this case, D is 100,000 units, S is $10 per order, and H is $2.00 per unit. Plugging these numbers into the formula gives:

EOQ = \(\sqrt{(2 * 100,000 * 10)/2}\) = \(\sqrt{1,000,000}\) = 1,000 units.

To find the expected number of orders per year, we divide the annual demand by the EOQ:

Number of orders = D/EOQ = 100,000/1,000 = 100 orders per year.

The company can expect to place about 100 orders per year to maintain optimal inventory levels.

Answer 2

Expected number of orders=31.6 orders per year

Step-by-step explanation:

The expected number of orders would be the Annual demand divided by the economic order quantity(EOQ).

The Economic Order Quantity (EOQ) is the order quantity that minimizes the balance of holding cost and ordering cost. At the EOQ, the holding cost is exactly the same as the ordering cost.

It is calculated as follows:

EOQ = (2× Co D)/Ch)^(1/2)

Co- ordering cost Ch - holding cost, D- annual demand

EOQ = (2× 10 × 100000/2)^(1/2)= 3162.27 units

Number of orders = Annual Demand/EOQ

= 100,000/3,162.27= 31.62 orders

Expected number of orders=31.6 orders per year