Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540, and Haulsee's inventory carrying costs average 14% of the inventory value. What is the optimal ordering frequency?

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Quizplus · Accepted Answer

The optimal ordering frequency can be determined using the Economic Order Quantity (EOQ) model and the formula to calculate the number of orders per year. First, calculate the EOQ using the formula: EOQ = sqrt((2DS)/H), where D is the demand (800,000 units), S is the ordering cost ($540), and H is the holding cost per unit per year (14% of $370). This gives us EOQ = sqrt((2*800,000*540)/(0.14*370)) = sqrt((864,000,000)/51.8) = sqrt(16679536.68) ≈ 4084 units per order. Then, to find the ordering frequency, divide the annual demand by the EOQ: 800,000 / 4084 ≈ 195.9 orders per year. To find the frequency in days, divide the number of days in a year by the number of orders: 365 / 195.9 ≈ 1.86 days.