Question 1
A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time. The firm estimates that carrying cost is 30% per year, and that ordering cost is about $20 per order. The current price of the ingredient is $200 per ounce. The assumptions of the basic EOQ model are thought to apply. For what value of annual demand is their action optimal?
Question 2
A printing company estimates that it will require 1,000 reams of a certain type of paper in a given period. The cost of carrying one unit in inventory for that period is 50 cents. The company buys the paper from a wholesaler in the same town, sending its own truck to pick up the orders at a fixed cost of $20.00 per trip. Treating this cost as the order cost, what is the optimum number of reams to buy at one time? How many times should lots of this size be bought during this period? What is the minimum cost of maintaining inventory on this item for the period? Of this total cost, how much is carrying cost and how much is ordering cost?
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