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Activity 12

1. The document contains 3 examples solving economic order quantity (EOQ) model problems. 2. The first example is for a company that orders 20,000 units annually at $640/unit. The optimal order quantity is 357.77 units with a total annual cost of $53,666.38. 3. The second example is for a toy manufacturer that uses 32,000 silicon chips annually. The optimal order quantity is 1,600 chips with a total annual cost of $43,200. The reorder point is 933.33 chips. 4. The third example is for a bakery that uses 1,344 bags of sugar annually. The optimal order quantity is 24 bags with an average

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ANDI TE'A MARI SIMBALA
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1K views3 pages

Activity 12

1. The document contains 3 examples solving economic order quantity (EOQ) model problems. 2. The first example is for a company that orders 20,000 units annually at $640/unit. The optimal order quantity is 357.77 units with a total annual cost of $53,666.38. 3. The second example is for a toy manufacturer that uses 32,000 silicon chips annually. The optimal order quantity is 1,600 chips with a total annual cost of $43,200. The reorder point is 933.33 chips. 4. The third example is for a bakery that uses 1,344 bags of sugar annually. The optimal order quantity is 24 bags with an average

Uploaded by

ANDI TE'A MARI SIMBALA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SIMBALA, Andi Te’a Mari O.

ID Number : 2204965

BS Accountancy 2 Production and Operations Management (1498)

Activity 12
Solve the following EOQ model problems:

1. Each year, Y Company purchases 20,000 units of an item that costs P 640 per unit. The cost of placing an order is
P 480, and the cost to hold the item in inventory for one year is P 150.
a. Determine the EOQ.

2 DS
EOQ=
√ H

2 ( 20,000 ) (480)
EOQ=
√ 150
EOQ=357.77087 357.77 units

b. What is the average inventory level, assuming that the minimum inventory level is zero?

EOQ
Average Inventory Level=
2
357.77
Average Inventory Level=
2
Average Inventory Level=178.885 178.89

c. Determine the total annual ordering cost and the total annual holding cost for the item if the EOQ is
used.

Annual Demand ∈Units


Total Annual Ordering Cost = ×Ordering Costs per Order
EOQ
20,000
Total Annual Ordering Cost = × 480
357.77
Total Annual Ordering Cost =Php 26,832.88

Total Carrying Costs= Average Inventory x Carrying Cost per Unit


Total Carrying Costs=178.89 x 150
Total Carrying Costs=Php26,833.50
2. A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are used at a steady rate during
the 240 days the plant operates. Annual holding cost is P27 per chip and ordering cost is P1,080. Lead time = 1
week.
a. Find the EOQ.

2 DS
EOQ=
√ H

2(32,000)(1080)
EOQ=
√ 27
EOQ=1600 silicon chips

b. Find the reorder point.

Annual Demand
Reorder Point= × Lead Time
Number of Operating Days per year
32,000
R eorder Point= (7 days)
240 days per year
ℜorder Point=933.33 units

c. What would be your ordering policy for this item?

Place an order of 1600 units of silicon chips whenever its inventory level drops to 933.33 units.

d. Find the total annual cost of ordering and carrying silicon chips.

Annual Demand ∈Units


Total Annual Ordering Cost = ×Ordering Costs per Order
EOQ
32,000
Total Annual Ordering Cost = ×1,080
1,600
Total Annual Ordering Cost =Php 21,600

Total Carrying Costs= Average Inventory x Carrying Cost per Unit


1,600
Total Carrying Costs= x 27
2
Total Carrying Costs=Php21 , 600

3. A large bakery buys sugar in 50-kg bags. The bakery uses an average of 1,344 bags a year. Preparing an order
and receiving a shipment of sugar involves a cost of P 135. Annual carrying costs are P 630 per bag. The bakery
operates 280 days per year. Lead time = 2 weeks.
a. Determine the economic order quantity.

2 DS
EOQ=
√ H

2(1344)(135)
EOQ=
√ 630
EOQ=24 bags

b. What is the average number of bags on hand?

EOQ
A verage Inventory=
2
24
Average Inventory=
2
Average Inventory=12 bags

c. When should the bakery order for more sugar?

Annual Demand
Reorder Point= × Lead Time
Number of Operating Days per year
1344 bags
Reorder Point= x (14 days)
280 days per year
Reorder Point=67.2 units
d. How many times per year will the bakery order for sugar?

D
Number of Orders per year=
Q
1344
Number of Orders per year=
24
Number of Orders per year=56 orders per year

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