ABC Ltd sells 12 000 rolls of films per year.The wholesale price is $3 per roll.The cost of processing each order to be placed with the wholesaler is $12.50 and carrying costs are 30 cents per roll per year.What is the optimal time period between orders?

Question

Quizplus · Accepted Answer

To find the optimal time period between orders, we can use the Economic Order Quantity (EOQ) formula:

EOQ = √[(2DS)/H]

where D = annual demand (12 000 rolls), S = cost of placing an order ($12.50), and H = carrying cost per unit per year ($0.30).

Plugging in the values, we get:

EOQ = √[(2 x 12 000 x 12.50)/0.30] = √(600 000) = 774.6

This means that the optimal order size is 774.6 rolls. To find the optimal time period, we need to divide the annual demand by this order size:

Optimal time period = (D/EOQ) = 12 000/774.6 = 15.48 months

Converting this to the closest whole number of months, the optimal time period between orders is monthly (i.e. every 15 or 16 months, depending on seasonal variations in demand). Therefore, the best choice is B.

ABC Ltd Sells 12 000 Rolls of Films Per Year