(EOQ calculations) A downtown bookstore is trying to determine the optimal order quantity for a popular...
(EOQ calculations) A downtown bookstore is trying to determine the optimal order quantity for a popular novel just printed in paperback. The store feels that the book will sell at four times its hardback figures. It would, therefore, sell approximately 5,000 copies in the next year at a price of $1.50. The store buys the book at a wholesale figure of $1. Costs for carrying the book are estimated at $0.30 a copy per year, and it costs $30 to order more books.
a. Determine the EOQ.
b. What would be the total costs for ordering the books 1, 4, 5, 10, and 15 times a year?
c. What questionable assumptions are being made by the EOQ model?
Homework Answers
(C) Assumptions of EOQ model are:
- Ordering cost remains same.
- Lead time is always same. Lead time is time from initiation to the completion of the order.
- Annual demand is known and is spread throughout the year.
- Carrying cost and per unit cost of the product is also constant.
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