The ordering cost for a certain product is $8 per order and the holding cost is $1 per year. The annual demand is 2400 units. Consider the following ordering plans: plan 1: Order all 2400 at one time plan 2: Order 400 once each quarter plan 3: Order 100 once each month Determine: (a) Calculate the annual total costs associated with each plan (plan 1, 2 and 3), and compare the costs (total cost, holding costs and ordering cost). (b) Is there another plan, cheaper than any of these? Calculate the total cost of the cheaper or optimal plan; and for the optimal plan determine how many times in a year an order needs to be in place. (c) In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, will the new EOQ increase or decrease then by what percentage.
The ordering cost for a certain product is $8 per order and the holding cost is $1 per year. The annual demand is 2400 units. Consider the following ordering plans:
plan 1: Order all 2400 at one time
plan 2: Order 400 once each quarter
plan 3: Order 100 once each month
Determine:
(a) Calculate the annual total costs associated with each plan (plan 1, 2 and 3), and compare the costs (total cost, holding costs and ordering cost).
(b) Is there another plan, cheaper than any of these? Calculate the total cost of the cheaper or optimal plan; and for the optimal plan determine how many times in a year an order needs to be in place.
(c) In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant, will the new EOQ increase or decrease then by what percentage.
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