Question #230589

Expert's answer

**Solution:**

a.). The Economic Order Quantity (EOQ) = "\\sqrt{\\frac{2DS}{H} }"

Where: D = Annual quantity demanded = 800,000

S = Ordering cost = 200

H = Holding cost per unit = 16

The Economic Order Quantity (EOQ) = "\\sqrt{\\frac{2\\times 800,000 \\times 200}{16} }" = "\\sqrt{20,000,000 } = 4,472 \\;units"

The Economic Order Quantity (EOQ) = "4,472 \\;units"

Re-order point = Average daily unit sales "\\times" lead time

Where: Average daily unit sales = "\\frac{800,000}{360} = 2,222"

Lead time = 5 days

Re-order point = 2222 "\\times" 5 = 11,110 units

b.). New cost of an order = 200 – (200 "\\times" 25"\\%" ) = 200 – 50 = 150

New carrying cost = 16 – (16 "\\times 15\\%") = 16 – 2.4 = 13.6

The Economic Order Quantity (EOQ) = "\\sqrt{\\frac{2DS}{H} }"

Where: D = Annual quantity demanded = 800,000

S = Ordering cost = 150

H = Holding cost per unit = 13.6

The Economic Order Quantity (EOQ) = "\\sqrt{\\frac{2\\times 800,000 \\times 150}{13.6} } = \\sqrt{17,647,059 } = 4,200 \\; units"

The new Economic Order Quantity (EOQ) = 4,200 units

Re-order point = Average daily unit sales "\\times" lead time

Where: Average daily unit sales = "\\frac{800,000}{360} = 2,222"

Lead time = 5 – (5 "\\times 20\\%") = 5 – 1 = 4 days

Re-order point = 2222 "\\times" 4 = 8,888 units

New Re-order point = 8,888 units

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