Problem:
Calculation of EOQ
A business currently order 1000 units of product X at a time. It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity.
Information regarding stocks in given below:
|
Purchase price
|
£15/unit
|
|
Fixed cost per order
|
£200
|
|
Holding cost
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8% of the purchase price per annum
|
|
Annual demand
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12 000 units
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Current annual total stock costs are £183 000, being the total of the purchasing, ordering and holding costs of product X.
Required
(a) Calculate the Economic Order Quantity
(b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish the difference compared to the current ordering policy.