Thread: 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).

Any help?

Thanks!!

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.

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??

You hard of hearing, Camkin?

What does D stand for? Dartboard?
What does S stand for? Sweetn'low?
What does H stand for? Heinzketchup?

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!!

Ahhh....I see....
Go here: Economic order quantity - Wikipedia, the free encyclopedia

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

Are Pep Perrony and Ann Chovies an item ?

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?

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).

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!

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

Thanks again!!!

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

.

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

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!