# Thread: Economic Order Quantity - Problem

1. ## Economic Order Quantity - Problem

Hi everyone, since 3 days i try to figure out this problem in my homework.

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Midtec Limited

Midtec Ltd. Manufactures specialist lubricants for use in industrial processes.

Two key materials used in the process are Kitain and Jensten.
Kitain costs $2 per litre to purchase and Jensten$1 per litre.
Annual usage of Kitain and Jensten is 30,000 and 85,000 litres respectively. Holding costs for Kitain are 8c per litre per year and 11c per year for Jensten. Buying costs for Kitain are $85 per order and$55 per order for Jensten. At present, the Economic Order Quantity for Kitain is 7,984 litres and for Jensten 9,220 litres.

The suppliers of materials Kitain and Jensten have offered Midtex Ltd. A discount of 2% off the buying price for orders of 15,000 litres of Kitain and 20,000 litres of Jensten. If this policy is adopted, the management estimate that there will be an effect on the amounts of materials that the company is able to store. More storage space will have to be rented and managed at an estimated cost of \$1,750 per annum.

Required:
(a) For each material, using EOQ, calculate the re-order costs, holding costs and total costs per annum.
(b) Evaluate the proposal from the supplier to determine whether it is financially worthwhile ordering larger quantities instead of ordering the EOQ.
(c) What practical problems may arise when pursuing an EOQ policy within a company?

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So i checked the formula Q*=square root of 2DS/H
 Purchase cost Ordering cost Holding cost Total Cost Kitain 60.000 25.550.000/Q 319,36 63.519,5103 Jensten 85.000 4.675.000/Q 507,1 86.014,14989

Then i really don't know how to answer to the question

Can anyone help me ??
Thank you so much

2. ## Re: Economic Order Quantity - Problem

Hey vdce.

Do you have formulas for those who aren't economics or business majors?

3. ## Re: Economic Order Quantity - Problem

Yes I'm sorry.

Wiki gives great definition with all the formulas. Economic order quantity - Wikipedia, the free encyclopedia

According to my lessons and to that, this is the formula i use to calculate Purchase costs, Ordering costs and Holding costs, then Total costs.

So this is the A answer of the exercise. But after I can't find a way to continue with b and c.

Thanks

4. ## Re: Economic Order Quantity - Problem

2/L and 1/L match P
30.000L and 85.000L match D
0,08/L and 0,11 match H
85/order and 55/order match S
7.984L and 9.220L match H

Total Cost = P.D + D.S/Q + H.Q/2