# Need help getting started - EOQ question

• May 31st 2013, 03:08 PM
jay1
Need help getting started - EOQ question
If anyone can help me get a start formatting this correctly, I would appreciate it! Company A’s demand is uniform throughout the year and totals 18,000 units per year. Ordering costs total \$38 per order. The annual holding cost rate is 26% of the value of the inventory. The per-unit cost of inventory is \$12.Company B’s demand is uniform throughout the year and totals 15,000 units per year. The production setup costs total \$84 per setup. The annual holding cost rate is 28% of the value of the inventory. The per-unit cost of finished product is \$19. The production rate is constant and equivalent to 60,000 units per year.
A. Determine the order size for Company A in the given scenario that would minimize total annual cost by using the economic order quantity model.
B. Determine the lot size for Company B in the given scenario that would minimize total annual cost by using the economic production lot size model

For A: q*= square root of 2KD/h I think that H=0.26 D=18,000 K=12 Am I on the right track?
• May 31st 2013, 06:12 PM
jay1
Re: Need help getting started - EOQ question
Okay this is what I have for Part A (company A only), but I cannot figure out where the 26% annual holding cost rate comes in to play. Any help figuring where I left this out and how to include is greatly appreciated!
EOQ = √2UP / C
Where: U = Annual usage in units =18,000
P = Ordering cost per order = 38
C = Carrying cost per unit =12

EOQ = √2UP / C => = √(2 x 18,000 x 38) / 12 => 337.6 or 338 units (after rounding)
Number of orders per year = U / EOQ => 18,000 units/338 = 53.25 or 53 orders (rounded)