Question

An automobile dealer expects to sell 1250 cars a year. The cars cost $9000 plus a fixed charge of $1000 per delivery. If it costs $1000 to store a car for a year, find the order size and the number of orders that minimize inventory costs. cars per order orders per year

Answer 1

Answer:

Order size = 50 cars

The number of orders=25

Explanation:

The Economic Order Quantity (EOQ) is the order size that minimizes the balance of ordering cost and holding cost. At the EOQ, the carrying cost is equal to the holding cost.  

It is computed using the formulae below  

EOQ = √ (2× Co× D)/Ch  

Co- Ordering cost, Ch- Carrying cost - D- Annual demand  

EOQ= √2× 1000× 1250/1000= 50

Number of cars to be ordered per time, i.e optimal order size= 50 cars

Order size = 50 cars

b)

The number of times orders should be placed per year would be calculated as follows:

The number of orders = Annual demand/ order size

The number of orders= 1250/50 = 25

The number of orders=25