Question

Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store’s best-selling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cos = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. 2) Use the information in Scenario 9.3. Tom cuts the ordering cost in half by implementing a streamlined processing system. How many fewer units should he now order each time he places an order?

Answer 1

Answer:

73 units

Explanation:

Given:

Demand, D = 25 units/week

Order cost, O = $ 3/ order

Holding cost, H = $ 1.50/ unit/year

Operation time = 52 weeks/year

thus,

the total annual demand = 25 × 52 = 1300 units

Now,

the economic order quantity (EOQ) is given as:

$\textup{EOQ}=\sqrt{\frac{2DO}{H}}$

where, D is the annual demand

on substituting the values, we get

$\textup{EOQ}=\sqrt{\frac{2\times1300\times3}{1.50}}$

or

$\textup{EOQ}=\sqrt{5200}$

or

EOQ = 72.11 units ≈ 73 units

he should now order 73 units at a time