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3 April, 07:24

You purchase lubricating oil in 55 gallon drums and consume and average of 484 drums per year. Preparing an order and receiving a shipment of lubricant costs $5.0 per order. Annual carrying costs are $76 per drum.

Determine the EOQ.

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Answers (2)
  1. 3 April, 07:26
    0
    EOQ = 8 units.

    Explanation:

    Economic order quantity = sqrt{2DS}/h

    where Q = EOQ units

    D = demand in units

    S = Order cost (per purchase order)

    h = holding cost (per unit, per year)

    h = Annual carrying cost: = 76 per drum

    S=Ordering cost = $5 per order

    D = Annual demand = 484 drums per year

    Calculation: EOQ = sqrt{2 * 484 * 5} / 76

    =sqrt (4840/76)

    = 8 units

    8 EOQ units where ordering cost and carrying are equal.
  2. 3 April, 07:44
    0
    EOQ = ≅ 8

    Explanation:

    EOQ = √ (2SD) / H

    S = ordering cost per order = $5.0

    H = Holding cost = $76

    D = Annual Demand = 484 drums

    EOQ = √ (2 x 5 x 484) / 76

    = √63.68

    7.98

    This implies that the optimal quantity that can be ordered for to minimize ordering and carrying cost is 8 drums per order.
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