Good morning, I am calculating Economic Order Quantity, how long each order will last and re-order time. The business works for 280 days per year.I know yearly demand (7000 units), cost to place single order ($220), yearly hold cost ($25 per unit). I used the EOQ formula of Square Root of 2 x yrly demand x cost for single order / yrly holding cost. Thus: Square root of 2 x 7000 x 220 / 25 = 351.Firstly, I am unsure of how to calculate how long each order will last. I tried the following:Yrly demand = 7000 thus: 7000 units = 365 days 1 unit = 365 /7000 351 units = 365/7000 x 351 = 18.3 daysI used 365 days because the demand is yearly and I used 351 as that is what I calculated as the EOQ. I can't find anything about this in my textbook so was kind of using logic, as misguided as that may be! Is this totally wrong? ShouldI use 365 days or 280 days....or is it something else completely?Following this, I would like o calculate how often I need to re-order. I understand the re-order formula to be:Max daily or weekly or monthly usage x lead timeHowever, I am not sure what to use as the usage or lead time figues. And where do I use the 280 work days a year? I have gone as far as I can!I am grateful for your guidance.
Textbook (nothing in this text)
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An industrial air-conditioning manufacturer regularly orders filter components for its large conditioners. The cost to place a single order is $225 and the cost to hold a single order is $25 per filter. The company uses 7000 filters annually. An average working year for the company is 280 days.
What is the economic order quantity for the filter?
On average, how long would each order last?
How often do the filters need to be re-ordered?
The economic order quantity is the Square root of [(2*7,000*$225)/$25)] = square root of 126,000 = 354.97, or 355How long would each order last? First you take 7,000/280 = 25 units per working dayThen, take 355 units / 25 units per day = 14.2 days in the orderHow often do the filters need to be re-ordered?280 working days/14 days per order = 20I used 365 days because the demand is yearly and I used 351 as that is what I calculated as the EOQ. I can't find anything about this in my textbook so was kind of using logic, as misguided as that may be! Is this totally wrong? Should use 365 days or 280 days....or is it something else completely?You need to use 280 days as the year, because they don't have parts running during the other part of the year. Only a factory that works 365 days in a year would use that as their base. In absence of indication otherwise, assume 365 but you were given 280 in this problem. If this helped, then rate my service as "excellent" so that I can be compensated for assisting you today. Otherwise, click "reply" or "continue conversation" for continued dialog with me.VERY IMPORTANT - IF you are having DIFFICULTY RATING, please let me know IMMEDIATELY. If you don't rate my response, I don't get paid even though your deposit is retained by the site. Thanks for your cooperation in this matter.
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Thank you so much. I was getting a bit off track there! Will close off the question now. Thanks again.