1. A company has estimated its economic order quantity for Part A at 2,400 units for the coming year.

If ordering costs are P200 and carrying costs are P0.50 per unit per year, what is the estimated total annual usage?

a. 6,000 b. 28,800 c. 7,200 d. 2,400

Economic order quantity (EOQ) = (2*A*O/C)^1/2

Where:
A = Annual usage or annual demand (?)
O= Ordering cost per order P 200
C = Carrying cost per unit per annum P 0.50

EOQ = (2*A*200/0.5)^1/2
2400 = (A*800)^1/2
(2400)^2 = A * 800
5760000 = A * 800
800 800

A = 7200

answer: c. 7,200

2. As a consequence of finding a more dependable supplier, Dee Co. reduces its safety stock of raw materials
by 80%. What is the effect of this safety stock reduction on Dee’s economic order quantity? 

a. 80% decrease b. 64% decrease c. 20% increase d. No effect

answer: d. No effect

3. Refer to Diane Delbert . Include the computation of : c) Total Annual Costs of Ordering and Carrying Costs at EO
a.
Economic Order Quantity (EOQ):

= 2 * Demand * Order Cost

Annual Carrying Cost

= 2*7,000*32
0.5

= 448000
0.5

= 896000

= 946.5728

b.
Reorder point = (daily demand * lead time) + safety stock
= (7,000/365 = 19.18 pounds * 12 days) + (19.18 pounds * 7)

= 364.41 pounds

c. Total cost = Annual Ordering Cost + Annual Carrying Cost

= Annual Demand + EOQ

(Cost per order) (Carrying Cost per unit)
EOQ 2

7,000 (32) 946.5728 (0.5)

+
946.5728 2

236.6432 + 236.6432

= 473.28638
he coming year.
stimated total annual usage?

stock of raw materials

ering and Carrying Costs at EOQ.

(Carrying Cost per unit)