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Math Help - Economic Order Quantity

  1. #1
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    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!!
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  2. #2
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    Quote Originally Posted by camkin View Post
    I know the formula is SQRT (2DS/H).
    Don't do that! First, show what your 3 variables (D, S and H) represent.
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  3. #3
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    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??
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  4. #4
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    You hard of hearing, Camkin?

    What does D stand for? Dartboard?
    What does S stand for? Sweetn'low?
    What does H stand for? Heinzketchup?
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  5. #5
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    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!!
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  6. #6
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    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 ?
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  7. #7
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    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?
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  8. #8
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    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).
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  9. #9
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    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!!!
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  10. #10
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    Quote Originally Posted by camkin View Post
    > 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
    .
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  11. #11
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    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
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  12. #12
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    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!
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