Scenario: The owner of a large bicycle sales and repair business stocks a popular brand of mountain bikes. Based on historical data, the estimated annual demand for the bikes is 1375 units.
The estimated average demand per day is 11 units. The purchase cost from the distributor is $765.00 per unit. The lead-time for a new order is 7 days. The ordering cost is $72.50 per order. The average holding cost per unit per year is $32.51. The business has traditionally ordered 48 units each time they placed an order. Based upon using the businesses' current ordering model:
Scenario: The president of the bicycle business has recently heard about the EOQ model and is interested in learning whether or not using this model would allow the company to reduce its annual costs by optimizing the number of orders placed each year and the number of bicycles purchased in each order.
The estimated annual demand for the bicycles, estimated average demand per day, purchase cost from the bicycle manufacturer per unit, lead time for a new order, ordering cost per order and average holding cost per unit per year remain the same as stated in the scenario for the current ordering model. Based upon using the EOQ model (with instantaneous receipt):
Question 1: What is the economic order quantity (EOQ) that will minimize inventory costs?
64.64
75.35
78.31
78.97
Refer to the data in the Question 1. How many orders per year will be necessary based upon using the EOQ?
Refer to the data in the Question 1. What is the average number of units in inventory based upon ordering using the EOQ?
37.67
39.16
39.48
32.32