Question

Vetox sells industrial chemicals. One of their inputs can be purchased in either jugs or barrels. A jug contains one gallon, while a barrel contains 55 gallons. The price per gallon is the same with either container. Vetox is charged a fixed amount per order whether it purchases jugs or barrels. The inventory holding cost per gallon per month is the same with either jugs or barrels. Vetox chooses an order quantity to minimize ordering and holding costs per year. Would Vetox purchase a greater number of gallons with each order if it purchased with jugs or with barrels?

Answer 1

The formula to calculate Economic Order Quantity is.

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

Thus,

D = demand rate

P = Unit cost

H = holding cost per gallon per months

S = ordering cost

It very well may be seen that order quantity is legitimately relative to demand rate and ordering cost. ordering quantity is conversely corresponding to holding cost. In this manner, the ordering quantity relies upon demand rate, ordering cost and holding cost as order quantity is legitimately relative to demand rate and ordering cost.

Along these lines. Vetox sells may arrange number of gallons with containers or barrels extending on the Demand rate. ordering cost and holding cost factors.