Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of $6 per order, and carrying costs of $2.40 per pipe.
a. What is the economic ordering quantity?
b. How many orders will be placed during the year?
c. What will the average inventory be?
The formula for calculatiing EOQ is? SQRT ( 2 X Ordering Cost X Annual Usage)/Annual Holding Cost)
Putting in the figures we get
Ordering Cost Annual Holding Cost/Unit Annual Usage EOQ 6 2.4 ??????????72,000 600 The EOQ comes out to be 600
Since the total usage is 72,000 and the quantity per order is 300.
The number of orders would be 72000/600= 120
The quantity per order is 600 and new order would be placed when this quantity becomes zero. The inventory would vary between 600 and zero. The average inventory would be (600+0)/2=300
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