Annual Carrying Cost = H (Q/2) = 25(1138.4) = total amount of times we will be ordering given our Quantity 28,460 Ordered (Q) and Demand (D). S (D/Q) = Annual Ordering Cost = Q = 9000, D = 72,000 900(72,000/2276.8) = 28,460.9 D/Q = (72,000/9000) = 8 orders per year Now we can see how much more money is saved by comparing Now we can find the Annual Total Ordering cost since we the differences in annual carrying and ordering costs between know that our ordering cost per order is $900 and we order 8 the Q of 9000 and 2276.8. times per year: = = Total Annual Ordering Cost S (D/Q) For Q of 9000: 900(8) = 7200 Total Cost = Ordering cost(7200) + Carrying Cost(112,500) So now we see what our cost is when we order 9000 units, but Total Cost = $119,700 we know if this is the optimum amount we can order in don’t order to have the lowest carrying and ordering cost! So in order For Q using EOQ 2276.8: – to do this we use the EOQ (Economic Ordering Quantity) to see if 9000 is too much or too little. Total Cost = Ordering Cost (28,461) + Carrying Cost(28,460) = Economic Order Quantity Total Cost = $56,921 Amount saved using EOQ: $199.700 - $56,921 = S62,779 D = 72,000, H = 25, S = 900 Quantity Discount Up until this point all of the models have assumed company will pay the same price if they order 1 units or 1,000 units. But what Given this new ordering quantity we can test out and see the happens to inventory control where there are discounts available new carrying and ordering costs the restaurant would have: for buying in bulk?
total amount of times we will be ordering given our Quantity Ordered (Q) and Demand (D). Q = 9000, D = 72,000 D/Q = (72,000/9000) = 8 orders per year Now we can find the Annual Total Ordering cost since we know that our ordering cost per order is $900 and we order 8 times per year: Total Annual Ordering Cost = S (D/Q) = 900(8) = 7200 So now we see what our cost is when we order 9000 units, but we don’t know if this is the optimum amount we can order in order to have the lowest carrying and ordering cost! So in order to do this we use the EOQ (Economic Ordering Quantity) to see if 9000 is too much or too little. Economic Order Quantity = D = 72,000, H = 25, S = 900 Given this new ordering quantity we can test out and see the new carrying and ordering costs the restaurant would have: Annual Carrying Cost = H (Q/2) = 25(1138.4) = 28,460 Annual Ordering Cost = S (D/Q) = 900(72,000/2276.8) = 28,460.9 Now we can see how much more money is saved by comparing the differences in annual carrying and ordering costs between the Q of 9000 and 2276.8. For Q of 9000: Total Cost = Ordering cost(7200) + Carrying Cost(112,500) Total Cost = $119,700 For Q using EOQ – 2276.8: Total Cost = Ordering Cost (28,461) + Carrying Cost(28,460) Total Cost = $56,921 Amount saved using EOQ: $199.700 - $56,921 = S62,779 Quantity Discount Up until this point all of the models have assumed company will pay the same price if they order 1 units or 1,000 units. But what happens to inventory control where there are discounts available for buying in bulk?