Question

It is Jan 1st and Great Distributing LLC has made a strategic decision on an annual contact to purchase a fixed monthly amount for the remained of the year because of a good price from its suppliers. The fixed monthly amount will be based on the EOQ.

1. Determine the EOQ given the following and create a monthly inventory projection to determine the estimated year end inventory given the following information:
Assume Inv Loss is month end (so beginning plus new inventory)
In July a sudden 10% demand increase occurs, but the new inventory purchase amount is already committed given Great Distributing's arrangement
Annual Demand 25000
Reord Cost 3000
CC 115
Starting Inv 1500
Inv Loss 3%

Answer 1

EOQ =1015 units

Step-by-step explanation:

Solution

Given that:

EOQ = √2 AO/C.I

Where,

A = the annual demand = 25,000 + 10% = 27, 500 units

O = the ordering cost = $ 3000/year

C = the carrying cost= $115/order

I = the inventory cost, ($1500 * 3.1%) = $45

Now,

EOQ =√ 2 *27, 500 * 3000/115 + 45

=√165,000,000/160

Thus,

EOQ = 1015 units reorder frequency