Cynthia Korinsky, manager of a large medical supply house that operates 50 weeks per year and 5 days per week, has decided to implement a periodic review system for all class A items. One such item has the following characteristics:
Demand $= 10,000$ units/year (or 40 units per workday)
Order cost$= \$ 50 /$ order
Holding cost $= \$ 5 /$ unit/year
If Korinsky wishes to minimize total cost (thereby approximating the EOQ), what should be P, the number of workdays between orders?

Question

Cynthia Korinsky, manager of a large medical supply house that operates 50 weeks per year and 5 days per week, has decided to implement a periodic review system for all class A items. One such item has the following characteristics: 
Demand $= 10,000$ units/year (or 40 units per workday) 
Order cost$= \$ 50 /$ order
Holding cost $= \$ 5 /$ unit/year 
If Korinsky wishes to minimize total cost (thereby approximating the EOQ), what should be P, the number of workdays between orders?

Quizplus · Accepted Answer

The EOQ formula is: EOQ = sqrt((2*D*O)/H), where D is demand, O is order cost, and H is holding cost. Plugging in the given values, we get: EOQ = sqrt((2*10,000*50)/5) = 1,414. Since we want to minimize total cost, we want to order as close to the EOQ as possible. The number of workdays between orders should be greater than 10 days but less than or equal to 12 days, which is the closest to the EOQ.

Cynthia Korinsky, Manager of a Large Medical Supply House That =10,000= 10,000=10,000

Cynthia Korinsky, Manager of a Large Medical Supply House That $= 10,000$