Apple Electronics sells several items to a diverse customer

Apple Electronics sells several items to a diverse customer base. Apple Electronics knows the demand is constant throughout the year. If the demand is 250 units, the carrying cost is estimated to be $1 per unit per year, and the ordering cost is $20 per order. a. How many units should be ordered each time an order is placed? b. Based on part a), how many orders per year are needed? c. What is the average inventory if costs are minimized? d. Suppose that the ordering cost is not $20 and that an order of 150 units have been placed, for this situation, what would be the ordering cost?

Solution

a.How many units should be ordered each time an order is placed?

Ans:

EOQ = SQRT (( 2* Demand * Order Cost)/ Holding Cost)

EOQ = SQRT ((2* 250 * 20) /1) = 100 Units

b. How many orders per year are needed ?

Ans:

Number of Orders = Annual Demand / Q = 250 /100 = 2.50

C. What is the average inventory if costs are minimized?

Ans:

Average Inventory = 100/2 = 50

D. Suppose that the ordering cost is not $20, and has been ordering 150 units each time an order is placed. For this order policy (of Q = 150) to be optimal, determine what the ordering cost would have to be.

Ans:

EOQ = sqrt (( 2* Demand * Order Cost)/ Holding Cost)

150 = sqrt ((2* 250 * Order Cost)/1)

Order Cost = 150 * 150 /( 2* 250)   = 75 *3/5 = 45 $