Question

Matthew Liotine‘s Dream Store sells beds and assorted supplies. His best-selling bed has an annual demand of 400 units.Ordering cost is $40; holding cost is $5 per unit per year.a) To minimize the total cost, how many units should be ordered each time an order is placed?b) If the holding cost per unit was $6 instead of $5, what would be the optimal order quantity?

Answer 1

Answer:

The optimal order quantity is 6

Explanation:

Please see attachment

Answer 2

The number of units to be ordered each time to minimize total cost is the level EOQ which is 80 units. When the holding cost is $6, EOQ is 73.02 units.

What is EOQ?

Economic order quantity or EOQ refers to the optimum order quantity that results in minimum total cost. It can be calculated as follows:

$\rm EOQ = \sqrt{\dfrac{2AO}{HC}}$, where A is the annual demand, O is the ordering cost, and HC is the holding cost.

Given:

Annual demand is 400 units

Ordering cost is $40

Holding cost is $5 per unit per year

Therefore EOQ will be:

$\rm EOQ = \sqrt{\dfrac{2AO}{HC}}\\\\\rm EOQ = \sqrt{\dfrac{2(400)(40)}{5}}\\\\\rm EOQ = \sqrt{\dfrac{32,000}{5}}\\\\\rm EOQ = \sqrt{6,400}\\\\\rm EOQ =80\:units$

Therefore the EOQ is 80 units.

When the holding cost changes from $5 to $6 the EOQ will be:

$\rm EOQ = \sqrt{\dfrac{2AO}{HC}}\\\\\rm EOQ = \sqrt{\dfrac{2(400)(40)}{6}}\\\\\rm EOQ = \sqrt{\dfrac{32,000}{6}}\\\\\rm EOQ = \sqrt{5333.33}\\\\\rm EOQ =73.02\:units$

Therefore the revised EOQ is 73.02 units.

Learn more about EOQ here:

https://brainly.com/question/9068415