Pam runs a mail order business for gym equipment. Annual demand is 16,000. The cost of...
Pam runs a mail order business for gym equipment. Annual demand is 16,000. The cost of the item is $25. The annual holding cost per unit is 10% of the value of the item. The cost to place an order is $50. Find the optimal inventory level, EOQ. Then find the total cost (storage + order cost).
Homework Answers
holding cost = 10% * 25 = 2.5
EOQ = [2 * Demand * Cost per order / holing cost] ^ (1/2)
= [2 * 16000 * 50 / 2.5] ^ (1/2)
= 640000 ^ 0.5
= 800
Total cost = (800 / 2) * 2.5 + (16000/800 )* 50 = 400 * 2.5 + 20 * 50 = 2000
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