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Answers:
a) Economic order quantity bags = 18 bags
b) Average number of bags = 9 bags
c) Number of orders per year = 67.5 orders
d) Total cost of ordering and carrying flour = $675
Economic order quantity
The Economic Order Quantity is used to artificially inflate the order's expenses, which include both fixed and variable costs. These expenses include the expenditures of purchasing from the provider, ordering, and transferring.
Explanation:
a) To find the economic order quantity of bags:
Given,
Annual Demand(x) = 1215 bags
Ordering Costs(y) = $10 per order
Annual carrying costs(z) = $75 per bag
Applying formula:
Economic order quantity = √((2 x Y x X) / Z)
= √((2 x 10 x 1215) / 75)
= 18
b) To find the average number of bags:
Economic order quantity = [tex]\frac{18}{2}[/tex]
2
= 9
c) To find the number of orders per year = Actual Demand
Economic Order Quantity
= [tex]\frac{1215}{18}[/tex]
= 67.5
d) Compute the total cost of ordering and carrying flour
= Total number of orders per year x Ordering cost
= 9 x 75
=675
To learn more about economic order quantity visit here:
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