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Q) A company reviewing its inventory management system.
Currently it order’s, on average, the same quantity e ery quarter but is now considering to the EOQ to determine its order size.It uses 10000 litres of raw material each year costing $20 per liters.
The order cost is $500 per orxer and holding cost is 5 cents per litre of inventory.What isthe annual savibgs for usingEOQ?
Please do not simply type out full questions and expect to be provided with a full answer. You must have an answer in the same book in which you found the question and so ask about whatever it is in the answer that you are not clear about, and then I will explain.
They are currently ordering 25,000 each time.
To find the EOQ you use the formula provided in the exam.
You can then cost out each of the two order quantities and the difference will be the saving.
The use of the EOQ formula, and how to do the costings per year are both explained in full, with examples, in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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