Question

A farmer needs 500 vats of fertilizer a week during the summer. He has a barn that can hold plenty of vats which cost around $1 a week for storage & handling per vat. The ordering costs for a new order are $250 regardless of the order size. What is the EOQ for this farmer during the summer months?

Answer 1

Answer:

Explanation:

$Q_{opt} = \sqrt{\frac{2DS}{H}}$

Where:

D = annual demand

S= supply cost = ordering cost

H= annual Holding Cost

We are asked for summer, so we work with a 3 months period

D = 500 * 12 weeks of summer = 6,000

S = 250

H= $1 x 12 weeks of summer = $12

$Q_{opt} = \sqrt{\frac{2\times 6,000\times 250}{12}}$

$Q_{opt} = 500$

How to Remember:

Demand per year and order cost goes in the dividend.  

Holding cost goes in the divisor.