Question

The Saugatuck Soda Company uses an average of 2,000 kg of sugar per day in producing its premium soda. Their production facility operate 360 days per year. They purchase sugar at $0.40/kg delivered. It costs Saugatuck $200 to process and order for sugar. They use a factor of 18% of the cost of sugar as the annual holding cost.

Calculate the economic order quantity for sugar for Saugatuck Soda.

Answer 1

Economic Order Quantity refers to the number of unit the company should add to the inventory and the order is made to minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs. Reorder point is the level of inventory which the firm holds in stock and when the inventory level reach this point, the firm must reorder the item.

EOQ act as a review inventory system to monitor the inventory level continuously and once the level reaches the reorder point, a fixed quantity of order is placed. Thus EOQ helps in calculating reorder point and optimal reorder quantity to avoid shortage of inventory.

d s 200o m 360 Cest 00 3200 20 00 360 1 2 0 000 1H 12 X 120 000 X 200 0.012. 63,245 56 63,246is r