# Economic Order Quantity

• Mar 22nd 2010, 08:21 PM
camkin
Economic Order Quantity
Ann Chovies, owner of Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas. Order costs for pepperoni are \$10.00 per order, and carrying costs are 4 cents per pound per day. Lead time for each order is 3 days, and the pepperoni itself costs \$3.00 per pound.

What is the economic order quantity for pepperoni?

I know the formula is SQRT (2DS/H).

Thanks!!
• Mar 22nd 2010, 08:56 PM
Wilmer
Quote:

Originally Posted by camkin
I know the formula is SQRT (2DS/H).

Don't do that! First, show what your 3 variables (D, S and H) represent.
• Mar 22nd 2010, 09:00 PM
camkin
d= 20 * 365 = 7320
s= 10
h= .04 * 20 * 365 = 292

This is where I'm confused...I thought this is how it works, but I'm not getting the answer we're supposed to get. :(

Any ideas where its wrong??
• Mar 22nd 2010, 10:29 PM
Wilmer
You hard of hearing, Camkin? (Wink)

What does D stand for? Dartboard?
What does S stand for? Sweetn'low?
What does H stand for? Heinzketchup?
• Mar 23rd 2010, 06:02 AM
camkin
Not so much hard of hearing as I am apparently not getting it. :(

D= Demand
S=Ordering Costs
H= Carrying/Holding Costs

Thank you so much for helping!!
• Mar 23rd 2010, 08:51 AM
Wilmer
Ahhh....I see....
Go here: Economic order quantity - Wikipedia, the free encyclopedia

Looks like you'll become an ordering specialist if you go there (Rock)

Are Pep Perrony and Ann Chovies an item ?
• Mar 23rd 2010, 09:10 AM
camkin
I've been there...and tried plugging numbers in the way they show-and I'm not getting the answer of "100" that we're supposed to arrive at. :(

Do you have any idea how this is worked?? Am I missing something?
• Mar 23rd 2010, 11:08 AM
Wilmer
Seems this is the way:

D = 365 * 20 = 7300
S = 10
H = 365 * .04 = 14.6

sqrt[(2DS) / H] = sqrt[(2 * 7300 * 10) / 14.6] = sqrt(10000) = 100

You owe me a large pepperoni with Ann Chovies (thin crust please).
• Mar 23rd 2010, 11:42 AM
camkin
Well, I see that your solution works out...but a question, why wouldn't the cost be .04 * 20 * 365? Wouldn't we have to account for the pounds used each day? I guess I've completely fallen off my rocker!

I do owe you a pizza! (Clapping)

There's another part to this question....feel like conquering it as well? (Nerd)

Thanks again!!!
• Mar 23rd 2010, 04:10 PM
Wilmer
Quote:

Originally Posted by camkin
> why wouldn't the cost be .04 * 20 * 365?
H = annual holding cost per unit ; a unit is ONE.
Using 20 would make results sqrt(500) = approx 22:
you wanna order 22 when you sell 20? Get my drift?

>Wouldn't we have to account for the pounds used each day?
Them "pounds each day" are used in the numerator: 2DS

>There's another part to this question....feel like conquering it as well?
Not really...maybe get help from a cook at PizzaPizza (Itwasntme)

.
• Mar 23rd 2010, 07:59 PM
Wilmer
Li'l "illustration" of how it works, and why answer = 100;
make it a 360 days period (easier to deal with):

1) Order 80 pounds every 4 days
order costs = 360/4 * 10 = \$900
carry costs = .04(80+60+40+20) = 8 ; 8 * 360/4 = \$720
total = 900 + 720 = \$1620

2) Order 100 pounds every 5 days
order costs = 360/5 * 10 = \$720
carry costs = .04(100+80+60+40+20) = 12 ; 12 * 360/5 = \$864
total = 720 + 864 = \$1584

3) Order 120 pounds every 6 days
order costs = 360/6 * 10 = \$600
carry costs = .04(120+100+80+60+40+20) = 16.80 ; 16.80 * 360/6 = \$1008
total = 600 + 1008 = \$1608

...and the winnah is .....?

NOTE: purchase price has NOTHING to do with this
• Mar 23rd 2010, 08:22 PM
camkin
Thank you sooo much for your help! Its made this MUCH more clear as to how this all works. I really appreciate your help!

Pizza's on me! :)