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Hi John,
Sorry to bother you with this one but I can’t find the answer anywhere!
Please can you tell me whether I should round up or down for EOQ problems.
Eg.
If the EOQ is 5477.23 – so do I place an order for 5478 units?
In the same question – the annual demand is 50,000 so with the EOQ given above – do I need to place 9.1 orders per year (or 9 orders or 10 orders).
Really, really appreciate your help with this
ThanksAs far as the exam is concerned you should round the EOQ to the nearest unit (unless the question says different – for example they could ask for it to the nearest 100).
So in your example you would normally round it to 5477. (However, from memory, I don’t think there has been a single exam question where the answer didn’t come to a whole number 🙂 )
With regard to the number of orders – this you do not round. In your example you would leave it at 9.1. This may seem strange – obviously they can’t place 9.1 orders a year. However we always assume that it is a long-term decision and so some years they will place 9 orders and other years 10 orders – on average it will be 9.1 orders a year.
The free lectures on this do explain this point. (They are in the Paper F2 section because EOQ’s are examinable at both F2 and F9).
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