Question

A creamery purchases three different types of cheese: panela cheese at $3.75 per pound, goat cheese at $7.10 per pound, and Oaxaca cheese at $4.50 per pound. The daily demand for each cheese is 45, 22, and 63 pounds respectively. The creamery has a dedicated supplier for each type of cheese, and the ordering cost is $2.00 per order. It is expensive to keep these products in inventory because they are highly perishable. The holding cost is estimated to be 0.5% of the purchasing price for each type of cheese.

What is the estimated economic order quantity for the goat cheese

Answer 1

Answer: 951 lb. per year

Explanation:

The Economic Order Quantity(EOQ) calculated by;

EOQ = √[(2 × D × S)/H]

D = Annual demand

S = cost per order

H = Holding Cost

Ordering cost = $2

Daily demand for goat cheese = 22

Purchase price of goat cheese = $7.10

Holding cost = 0.5% of purchase price

HOLDING COST = 0.005 × 7.10

Annual demand = 365 × 22 = 8030

EOQ = √[(2 × 8030 × 2)/(0.005×2)]

EOQ = √[(32120)/0.0355]

EOQ = √904788.73

951.2038333 lb. per year

951 lb. Per year