Answer to Question #311883 in Management for Dhruv

Question

Discuss the concept of EOQ in brief. Using the data below, find EOQ, and the reorder point. Annual Demand: 15,000 units; Weeks Operating: 50 weeks/year; Ordering Costs: Rs. 60/order & Holding Costs: Rs. 7/unit/year; Lead-Time: 5 weeks & Safety Stock: 250 units

Answer 1

The economic order quantity (EOQ) is a company's optimal order quantity that minimizes its total costs related to ordering, receiving, and holding inventory. 

EOQ = square root of: [2SD] / H

EOQ = square root of: (2*15000*60/7)

EOQ = square root of: 257,142.85

EOQ= 507 Units 

Reorder Point= (Daily average usage * Lead time)+ Safety stock 

Reorder Point= (50*5)+250

Reorder Point= 500 Units