Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed

Effect of different order quantities on ordering costs and carrying costs, EOQ

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• =2× 26, 000× €72€10.40= 360,000 =

21.22 Effect of different order quantities on ordering costs and carrying costs, EOQ. (30 min) 1 A straightforward approach to this requirement is to construct the following table for different purchase-order quantities. D Demand 26,000 26,000 26,000 26,000 26,000 Q Order quantity 300 500 600 700 900 Q Average stock in units 150 250 300 350 450 D/Q: Number of purchase orders 86.67 52 43.33 37.14 28.89 (D/Q) % P: Annual ordering costs €6,240 €3,744 €3,120 €2,674 €2,080 Q) % C: Annual carrying costs 1,560 2,600 3,120 3,640 4,680 Total relevant costs of ordering and carrying stock €7,800 €6,344 €6,240 €6,314 €6,760 ↑ Minimum cost D = 26,000 units Q = order quantity P = €72 C = €10.40 EOQ = 2DP C = 2× 26, 000× €72 €10.40 = 360,000 = 600 packages The shape of the total relevant cost function for Rève Andalou is relatively flat from order quantities 500 to 700. 2 When the ordering cost per purchase order is reduced to €40: EOQ = 2× 26, 000× €40 €10.40 = 200,000 = 447.2 packages rounded off to 447 packages The EOQ drops from 600 packages to 447 packages when Rève Andalou’s ordering cost per purchase order drops from €72 to €40. Download 1.72 Mb. Share with your friends: