Assignment:
The Economic Order Quantity (EOQ) is the amount that balances holding costs with ordering costs.
K is the ordering cost
R is the demand per period (generally a year)
h is how much it costs to hold 1 unit for a period of time generally given as a percentage of the unit cost.
Mozers Garden Solutions
a. Mozer Garden Solutions has a chain of retail stores in the Midwest. Mozer orders hedge trimmers from a wholesaler. Every year Mozer requires 9,000 hedge trimmers. The trimmers cost $250 per trimmer from their wholesaler.
The estimated cost of ordering at the wholesaler and paying shipping fees is $200 per order: K = $200
The holding cost per hedge trimmer is estimated to be 10% of the cost of the trimmer h = 0.1 Ã- $250 = $25
EOQ = SQRT(2*K*R/h)
Using the economic ordering quantity model, what is the order size that would minimize the total costs for ordering and storing the hedge trimmers?
b. Mozer also orders their garden rakes from a wholesaler. Every week Mozer requires 10 rakes. There are 50 weeks in a year. The rakes cost $50 per rake from their wholesaler.
The estimated cost of ordering at the wholesaler and paying shipping fees is $45 per order: K = $45
The holding cost per rake is estimated to be 5% of the cost of the rake h = 0.05 Ã- $50 = $2.50.
Using the economic ordering quantity model, what is the order size that would minimize the total costs for ordering and storing the rakes?
c. Economic Order Quantity: Using the information from Q2, how does the EOQ change if the demand for the rakes doubles to 20 rakes/week?