Question

Our home construction company buys nails in 15-pound boxes. We use an average of 1748 boxes a year. The vendor that makes the nails can produce 47 boxes per day while our usage is 6 boxes per day. It costs $2.40 to set up for each run. Annual carrying costs are $0.40 per box. What will be our average number of boxes on hand if we produce EPQ boxes in each order?

Answer 1

72.42 boxes

Step-by-step explanation:

In order to compute the average number of boxes on hand, first we have to compute the economic order quantity which is shown below:

Economic order quantity

`=\sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

`=\sqrt{\frac{2* \text{1,748}* \text{\$2.40}}{\text{\$0.40}}}`

= 144.83 boxes

Now the average inventory is

= Economic order quantity ÷ 2

= 144.83 boxes ÷ 2

= 72.42 boxes

Therefore, an average number of boxes on hand is 72.42 boxes