EOQ Example 1
Use formula on p.322
Units R 5000
Quantity Q ?
Cost of placing an order A 150
Cost of one unit of V 200
inventory
Carrying cost (%) W 30%
Inventory carrying cost S=VW 60
per unit per year
Remember S= VW
EOQ Example 2
1. A feedmill, that produces feed for a cattle feedlot, buys ingredients from various
suppliers for the production of their feed. On average, they require 750 tons of corn per
day to meet their production requirements. Assume that it costs R2000 per ton of maize
and that the cost to place an order is R1200. The carrying cost is 5.256% of the product
value. Calculate the economic order quantity for the company's maize purchases
(assuming that they follow a fixed order quantity approach under conditions of
certainty, and that there are 365 days per year).
2. Calculate the annual inventory carrying cost for the economic order quantity (calculated
in question 1). Round your answer to the nearest Rand.
3. Calculate the reorder point if any order is delivered within 4 days.
4. What is the main effect of introducing uncertainty into the fixed order quantity model?
a. Transportation costs increase
b. The capital cost component tends to vary
c. Product value begins to fluctuate
d. Safety stock becomes relevant
e. Order cost per order varies
Use formula on p.322
Units R 5000
Quantity Q ?
Cost of placing an order A 150
Cost of one unit of V 200
inventory
Carrying cost (%) W 30%
Inventory carrying cost S=VW 60
per unit per year
Remember S= VW
EOQ Example 2
1. A feedmill, that produces feed for a cattle feedlot, buys ingredients from various
suppliers for the production of their feed. On average, they require 750 tons of corn per
day to meet their production requirements. Assume that it costs R2000 per ton of maize
and that the cost to place an order is R1200. The carrying cost is 5.256% of the product
value. Calculate the economic order quantity for the company's maize purchases
(assuming that they follow a fixed order quantity approach under conditions of
certainty, and that there are 365 days per year).
2. Calculate the annual inventory carrying cost for the economic order quantity (calculated
in question 1). Round your answer to the nearest Rand.
3. Calculate the reorder point if any order is delivered within 4 days.
4. What is the main effect of introducing uncertainty into the fixed order quantity model?
a. Transportation costs increase
b. The capital cost component tends to vary
c. Product value begins to fluctuate
d. Safety stock becomes relevant
e. Order cost per order varies
