Question

A company makes bicycles. It produces 850 bicycles a month. It buys the tires for bicycles from a supplier at a cost of Rs.60 per tire. The company’s inventory carrying cost is estimated to be 15% of cost and the ordering is Rs.90 per order. Compute EOQ.

A: 639 tires

B: 522 tires

C: 580 tires

D: 621 tires

From the information given in the question above , Calculate number of orders to be made per year.

A: 35 orders

B: 39 orders

C: 37 orders

D: 32 orders

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Answer 1

B: 522 tires

B: 39 orders

Step-by-step explanation:

a. Calculation for EOQ

First step is to Calculate the Annual Demand which is D

D = Annual demand = (2 tires per bicycle) x (850 bicycles per month) x (12 months in a year)

D=20,400 tires

Second step the ordering cost is given in the question which is :

S = Ordering cost = 90 per order

Third step is to Calculate the carrying cost which is H

H = carrying cost = (15%) x ($60 per unit)

H= $ 13.50 per unit per year

Last step is to Calculate the EOQ

EOQ = √{ (2 x 20,400 x $90) / $13.50

EOQ= 522 tires

Therefore the EOQ is 522 tires which means that the company should order 522 tires each time they places an order.

b. Calculation for the number of orders per year

Using this formula

Number of orders per year = D / Q

Let plug in the formula

Number of orders per year = 20,400 / 522

Number of orders per year = 39 orders per year

Therefore the Number of orders per year will be

39 orders per year.