Healesville Toys sells stuffed koalas.Products Inc.manufactures many different stuffed animals.Healesville Toys orders 15 600 koalas per year,300 per week,at $25 per koala.The manufacturer covers all shipping costs.Healesville Toys earns 12% on its cash investments.The purchase-order lead time is 3 weeks.Healesville Toys sells 210 koalas per week.The following data are available (based on management's estimates):
Estimated ordering costs per purchase order $\quad \$ 10$
Estimated insurance, materials handling, breakage,
and so on, per year $\$ 3$
Actual ordering costs per order $\$ 15$
What is the economic order quantity (EOQ)using the estimated amounts?

Question

Healesville Toys sells stuffed koalas.Products Inc.manufactures many different stuffed animals.Healesville Toys orders 15 600 koalas per year,300 per week,at $25 per koala.The manufacturer covers all shipping costs.Healesville Toys earns 12% on its cash investments.The purchase-order lead time is 3 weeks.Healesville Toys sells 210 koalas per week.The following data are available (based on management's estimates):
Estimated ordering costs per purchase order $\quad \$ 10$
 Estimated insurance, materials handling, breakage,
 and so on, per year $\$ 3$
 Actual ordering costs per order $\$ 15$
What is the economic order quantity (EOQ)using the estimated amounts?

Quizplus · Accepted Answer

Using the formula for Economic Order Quantity (EOQ): 
EOQ = √((2DS)/H)
where,
D = annual demand = 15,600 koalas per year
S = ordering cost per order = $125 (300 koalas * $0.42 per koala)
H = holding cost per unit per year = $3 (12% of $25 per koala)

Plugging in the values:
EOQ = √((2*15,600*125)/3) = 360.96, which rounds up to 361

Therefore, the economic order quantity is 361 stuffed koalas.

Based on the estimates provided by management, the best choice would be to order 360 koalas every 3 weeks to minimize inventory holding costs and ordering costs while ensuring sufficient stock.

Healesville Toys Sells Stuffed Koalas $10\quad \$ 10$10 Estimated Insurance, Materials Handling, Breakage, and So On, Per

Healesville Toys Sells Stuffed Koalas $\quad \$ 10$ Estimated Insurance, Materials Handling, Breakage,
and So On, Per