Homework Answers
- The planning of ordering size such that to minimise the cost of holding and ordering can be done by the principal of Economic Order Quantity.
- Economic order quantity is calculated by using the formula √(2ao)/c where a is the consumption of raw material, o is the order processing cost and c is the carrying cost per unit per annum.
- In the given case a = 100+140+210+180 = 630, o = 200, c = 1.2
- Substituting the values
- √(2*630*200)/1.2 = √210000 = 458 units.
- Placing an order of 458 units will keep the total costs to minimum. And it also satisfies the condition as to as low orders as possible.
- The above quantity is due to the high order cost that carry cost so we should keep the number of orders to minium.
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