In this assignment you’ll solve the basic economic order quantity (EOQ) model in Excel using two methods: (A) a trial-and-error approach to find a very good but approximate answer, and (B) the EOQ formula to find the “exact” answer. Set up your spreadsheet similar to that shown below.
The situation: Roxie is responsible for purchasing the paper used in all copy machines and laser printers at Budco. After looking at her records, Roxie has found demand for paper averages 600 boxes per month. The price of a box of paper is $20 (regardless of the number ordered). Placing and handling an order costs $70. Annual unit holding costs per box are 25% of the unit price. Last year, Roxie ordered paper once every 2 months, but she wants to know if another ordering policy would be cheaper.
B. EOQ (Exact) Formula
2. What order quantity Q* minimizes total annual order + holding costs? boxes
3. The Excel cell formula required for cell E5 is SQRT(2*B1*B3/B4). What Excel cell formula is required for cell F5?
4. At Q*, what are the total annual ordering + holding costs?
5. How many times per year will Roxie place an order of size Q*?
6. Last year, Roxie ordered every 2 months. Her total annual ordering+holding costs were _____
7. What is the percentage reduction in annual ordering + holding costs achieved by Roxie in following the optimal inventory policy instead of last year’s ordering policy?