A = Demand for the year

Cp = Cost to place a single order

Ch = Cost to hold one unit inventory for a year

Total Relevant* Cost (TRC)

Yearly Holding Cost + Yearly Ordering Cost 

* “Relevant” because they are affected by the order quantity Q

Economic Order Quantity (EOQ)

EOQ Formula

Same Problem
Pam runs a mail-order business for gym equipment. Annual demand for the TricoFlexers is 16,000.
The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic

order quantity?

2. You’re a buyer for SaveMart. SaveMart needs 1000 coffee makers per year. The cost of each coffee maker is $78.
Ordering cost is $100 40% of per unit cost. Lead time is 5 days. SaveMart is open 365
per order. Carrying cost is
days/yr. What is the optimal order quantity & ROP?
3. A co. has got a demand for particular part at 10,000
units per year. The cost per unit is Rs. 2 & it costs Rs. 36 to
place an order and to process the delivery. The inventory carrying cost is estimated at 9%
of average inventory
investment. Determine

a. Economic order quantity.

b. Optimum no. of orders placed per annum.

c. Minimum total cost of inventory per annum.

4. A local distributor for a national tire company expects to sell approximately 9600 steel-belted radical tires of a certain
size and tread design next year. Annual carrying cost is $16 per tire, and ordering cost is $75 per order. The
distributor operates 288 days a year.

a. What is the EOQ?

b. How many times per year would the store reorder if the ECQ is ordered?

c. What is the length of an order cycle if the EOQ is ordered?

d. What is the total cost.

5. A toy manufacturer uses 48000 rubber wheels per year. The firm makes its own wheels at a rate of 800
per day.
Carrying cost is $1
per wheel per year. Setup cost for a production run is $45
. The firm operates 240
days per year.
Determine the:

a. The optimal run size

b. Minimum total annual cost for carrying and setup.

c. Cycle time for the optimal run size.

d. Run time for the optimal run size.

6. R & B beverage company has a soft drink product that has a constant annual demand rate of 3600 cases. A case of the
soft drink costs R & B $3
. Ordering costs are $20 per order and holding costs are 25% of the value of the inventory.
R & B has 250 5
working days per year, and the lead time is days. Identify the following aspects of the inventory policy:

a. Economic order quantity

b. Reorder point
c. Cycle time

d. Total annual cost

7. Nick's Camera Shop carries Zodiac instant print film. The film normally costs Nick $3.20 per roll, and he sells it for
$5.25 . Nick's average sales are21 rolls per week. His annual inventory holding cost rate is 25% and it costs Nick
$20 to place an order with Zodiac. If Zodiac offers a 7% discount on orders of 400 rolls or more and a 10% discount
for 900 rolls or more, determine Nick's optimal order quantity.

8. No-nonsense Engineering, a maker of the No. 562 valve, has offered quantity discounts. The volumes and prices are:

Order quantity (Q) Unit price (P)

1 to 99 $10.00

100 to 499 $9.50

500 or more $9.00

The company developed the following estimates: D = 2,000 valves per year, S = $30 per order, and C = 35% of
unit price (P). Determine the company`s true EOQ.

9. DKT Electronics, Inc. makes part number 562 for one of its computers. The annual demand is 10,000
units. The
annual carrying cost is $ 10 per unit, and the cost of preparing an order and making production setup for the order is
$100 . The firm operates250 days per year. The machine used to make this part has a production rate of 200
units
per day.

a. Calculate the economic production run size.

b. How many lots are to be produced in a year?

c. What is the annual cost of setups?

d. What is the average inventory?

e. What is the annual cost of carrying inventory of part 562?

10.Given: Annual demand = 15,000 ; Setup cost = $500 per production run; Holding cost = $50 per item per year;
Number of working days per year =240; Annual production rate = 25,000
a. What is the EPQ?

b. What is the total cost at EPQ?

c. What is the maximum inventory level?

d. What is the total number of production run in a year?

e. What is the length of production run?

f. What is the time between production?

g. What is the length of time with no production?

11.Given:

- annual demand = 100 units

- Ordering cost = $45 per order

- Holding cost per year = 20% of item cost

- Quantity discounts:

Order quantity Cost per item

55 or less $18

56 to 99 $16

100 or more $12

Determine the EOQ ?

12.A popular shoe store sells 8000 pairs per year. The fixed cost of ordering shoes from the distribution center is $15
and holding costs are taken as $12.5 per shoe per year. The per unit purchase costs from the distribution center is given
as V3=60, if 0 < Q < 50

V2=55, if 50 <= Q < 150

V1=50, if 150 <= Q

Where Q is the order size. Determine the optimal order quantity.

13.A popular shoe store sells 8000 pairs per year. The fixed cost of ordering shoes from the distribution center is $15
and holding costs are taken as 25% of the shoe costs. The per unit purchase costs from the distribution center is given as
C3=60, if 0 < Q < 50

C2=55, if 50 <= Q < 150

C1=50, if 150 <= Q

Where Q is the order size. Determine the optimal order quantity.

14.A local distributor for national tire company expects to sell approximately 9,600 steel – belted radial tires of a
certain size and tread design next year. Annual carrying costs are $16 per tire, and ordering costs are $75. The distributor
operates 288 days a year.1. What is the EOQ?2. How many times per year does the store reorder?

15.A firm manufactures products in job lots and this year expects to sell 10,000 units of its 27-gallon cooler. The unit
manufacturing cost of the cooler is $10 . Setup costs of$625 include labour for making machine settings, installing the
new dies, and other costs of setting up the production run of the coolers. The cost of storing and handling units is estimated
at20 percent of production cost. Compute the optimum production run.

16. A museum of natural history opened a gift shop which operates 52weeks per year. Managing inventories has become
a problem. Top-selling SKU is a bird feeder. Sales are 18 units per week, the supplier charges $60
per unit. Ordering cost
is$45. Annual holding cost is 25 percent of a feeder’s value. Management chose a 390-unit lot size.

a. What is the annual cycle-inventory cost of the current policy of using a 390-unit lot size?

b. Would a lot size of 468 be better?

c. Calculate the EOQ and its total annual cycle-inventory cost. How frequently will orders be placed if the EOQ is used?

17.ABC manufacturers produces 1,25,000 oil seals each year to satisfy the requirement of their client. They order the
metal for the bushing in lot of 30,000 units. It cost them $40 to place the order. The unit cost of bushing is$0.12
and the estimated carrying cost is25% unit cost. Find out the economic order quantity? What percentage of increases or
decrease in order quantity is required so that the ordered quantity is Economic order quantity ?
18.The XYZ Company produces wheat flour as one of their product. The wheat flour is produced in the pack of 1kg
. The
demand for wheat flour is 40,000 packs/year & the production rate is 50,000 packs/year. Wheat flour 1kgpack
cost$0.50 each to make. The Procurement cost is $5
. The carrying cost is high because the product gets spoiled in few
week times span. It is nearly 50
percent of cost of one pack. Find out the operating doctrine.

19.A computer company has annual demand of 10,000

. They want to determine EOQ for circuit boards which have an
annual holding cost of $6
/unit, and an order cost of $75. They want to caculate TC and the reoder point if the
5
purchasing lead time is days.

$10/hat and requires

20.Colin’s Sport store is considering going to a different hat supplier. The present supplier chargers
minimum quantities of 490 hát. The annual demand is 12,000 $20, and the inventory
hats, the ordering cost is
carrying cost is 20% of the hat cost. A new supplier is offering hats at $9 in lots of4000. Who should he buy
from ?

21.Assume that it takes 15 days for the supplier to deliver an order after it is placed. If the daily demand is 333.3 BF
per day, in 15 days a total of 5,000 BF will be consumed. If the company wishes to keep a safety stock of 2,500
BF, as shown in figure 1, then new orders need to be placed when the inventory level reaches 7,500 BF.
Mathematically, the reorder point can be expressed?

Figure 1. An inventory model that includes a reorder point as part of the inventory policy.

22.Imagine your business sells trainers and has a demand of 18,000 units per year( 1,500 a month). You’ve also
£75
worked out that staffing and transportation gives a total ordering cost of per purchase order while carrying costs sit
at£4 per unit. What is the perfect order quantity ?

23.A local distributor for a national tire company expects to sell approximately 9,600 steelbelted radial tires of a certain
size and tread design next year. Annual carrying cost is $16 per tire, and ordering cost is $75. The distributor operates
288 days a year.

a. What is the EOQ?

b. How many times per year does the store

c. reorder?

d. What is the length of an order cycle?

e. What is the total annual cost if the EOQ quantity is ordered?

24.Zartex Co. produces fertilizer to sell to wholesalers. One raw material – calcium nitrate – is purchased from a nearby
supplier at $22.50 per ton. Zartex estimates it will need 5,750,000 tons of calcium nitrate next year. The annual
40%
carrying cost for this material is $595.
of the acquisition cost, and the ordering cost is

a. What is the most economical order quantity?

b. How many orders will be placed per year?

c. How much time will elapse between orders?

25.A large bakery buys flour in 25 kg bags. The bakery uses an average of 4860 bags a year. Preparing an order and
receiving a shipment of flour involves a cost of $4per order. Annual carrying costs are $30/bag.

a. Determine the economic order quantity

b. What is the average number of bags on hand?

c. How many orders per year will there be?

d. Compute the total cost of ordering and carrying flour

e. If annual ordering cost were to increase by $ 1 per order. How much would that
affect the minimum total annual cost?