Answer to Question #264975 in Management for uzttttt

Question

Riex Blocks – “Hastang gahi a” specialized in the manufacturing of high-rise CHB (concrete hollow blocks). The company makes a semi-annual order for 2,400 sacks of cement at a unit price of 250.00. Its carrying cost per year is estimated at 7% of the price of concrete block. While the cost of preparing a requisition, a purchase order and receiving tickets, stocking the items when they arrive m processing the supplier’s invoice and remitting the payment to the supplier is 145 per order per year. What is the economic order quantity? and how many orders should be made each year?

Answer 1

EOQ = square root of: [2(setup costs)(demand rate)] / holding costs.

               Economic order quantity is an inventories management approach. It pertains to the best quantity of stock a firm should buy to fulfill desire while reducing retaining and keeping expenses. Only when a product's demand remains consistent throughout the year and every fresh sale is supplied in complete when inventory approaches zero does EOQ apply.

               Each order has a set cost irrespective of the number of components purchased; orders are considered to include only one unit. There is also a charge for each unit kept in preservation, known as retaining cost, which is frequently stated as a proportion of the product's purchasing price. While the EOQ calculation is simple, there are certain elements to contemplate in practice, such as shipping charges and quantity incentives.