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Homework answers / question archive / A Focal Firm has an annual requirement of 3,600 units of a component a year
A Focal Firm has an annual requirement of 3,600 units of a component a year. With Ordering costs of $15 per order, and carrying costs per unit are 40 percent of the purchase price when purchase price is of $1 each and lead time of 30 days. Determine the Economic order quantity of components to order.
Calculate
Computation of Economic Order Quantity (EOQ):
Economic Order Quantity (EOQ) = √ ((2 * S * D) / H)
Here,
Annual Demand (D) = 3600 units
Ordering cost (S) = $15 per order
Purchase price per unit = $1
Carrying cost per unit (H) = 40% of Purchase price = 0.40 * 1 = $0.40
Economic Order Quantity (EOQ) = √ ((2 * 15 * 3600) / 0.40)
= √ (108000 / 0.40)
= √ 270000
= 519.615
Economic Order Quantity (EOQ) = 520 units (Rounding off)
