Question

1 point a company makes bicycles. it produces 450 bicycles a month. it buys the tires for bicycles from a supplier at a cost of $20 per tire. the company's inventory carrying cost is estimated to be 15% of cost and the ordering is $50 per order. calculate the economic order quantity (eoq).

Answer 1

Answer:

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Answer 2

Concept

Economic order quantity is the ideal size of the order that the company should make to meet the demand by avoiding the overspending on the product.

Given

Production of bicycles in a month=450 bicycles

Purchasing cost of tires=$20 per tire

Inventory carrying cost=15% of the cost.

Ordering cost=$50 per order

To find

Economic order quantity

Explanation

The formula of ecomic order quantity=$\sqrt{2AO/C}$ in which A is consumption, O is the ordering cost and C is the carrying cost per unit.

Annual consumption of tires=450*12*2 (2 tires each for a bicycle)

=10800 Tires

Purchasing cost =10800*20=$216000

Carrying cost=216000*15%

=$32400

Economic order quantity=$\sqrt{2*10800*50/2700}$

=$\sqrt{1080000/3}$

=$\sqrt{360000}$

=600 tires

Hence the economic order quantity is 600 tires.

#SPJ2