Part 1
The Toledo Mudhens, a minor league baseball team, breaks an average of seven bats per week during a 38 week season. The team purchases it bats from a national supplier. The order cost is $185 and the annual holding cost is 24 percent of the purchase price.
What is the annual demand for bats?
If bats cost $25.00 each, what is the economic order quantity for bats?
What is the total annual cost associated with the EOQ quantity?
What impact will an increase to $295 in the order cost have on the EOQ quantity?
Suppose the Mudhens break an average of 9 bats per week during the season, what impact will this have on the EOQ quantity? (Assume the order cost is $175
Annual Demand (38 weeks * 7) 266 Ordering Cost $ 185.00 Holding Cost - 24% of Price = 24% * 25 $ 6.00 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H = (2 * 266 * 185) / 6 = 128.0755 or, 128 units Total Holding Cost (Average Inventory * Holding Cost per unit) $384 Total Ordering Cost (No of orders * Ordering Cost) $384 Product Cost (266 units * $25 per unit) $6,650 Total Cost $7,418 No of orders = Annual Demand/EOQ = 266/ 128 = 12.04 Ordering Cost per order = $185 Average Inventory = EOQ / 2 = 128/2 = 64 Holding Cost per unit = 24% of Price = 24% * 25 = $6 New EOQ when Order Cost increase to $295 EOQ = 2AO / H = (2 * 266 * 295) / 6 = 161.7302 or, 162 units EOQ increase by 34 units New EOQ when Annual Demand increase by 2 bats per week New Annual Demand (38 weeks * 9units/week = 342 units EOQ = 2AO / H = (2 * 342 * 175) / 6 = 141.2445 or, 141 units
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