A firm has the following gross requirements for Item F.If ordering costs are $60 per order and carrying costs are $0.50 per period.

If EOQ lot sizing is used to set the minimum order quantity,then the planned order releases would be
A)40 in period 1 and 0 in period 3
B)0 in period 2 and 80 in period 3
C)120 in period 2 and 120 in period 3
D)100 in period 2 and 100 in period 3

Question

A firm has the following gross requirements for Item F.If ordering costs are $60 per order and carrying costs are $0.50 per period.

If EOQ lot sizing is used to set the minimum order quantity,then the planned order releases would be
A)40 in period 1 and 0 in period 3 
B)0 in period 2 and 80 in period 3 
C)120 in period 2 and 120 in period 3 
D)100 in period 2 and 100 in period 3

Quizplus · Accepted Answer

To determine the EOQ, we need to calculate the total ordering and carrying costs for different order quantities and select the quantity that minimizes the total cost. Using the given data, we can calculate the annual usage or demand for Item F as:

Annual demand = 400 units (100 units per period)

Next, we can determine the EOQ using the formula:

EOQ = sqrt((2*annual demand*ordering cost)/carrying cost)

EOQ = sqrt((2*400*$60)/$0.50) = 120 units

Therefore, the minimum order quantity should be 120 units, and the number of planned order releases can be determined as follows:

Period 1: 120 units (since the gross requirement for the period is 100 units, and we need to order the EOQ)

Period 2: 120 units (since the beginning inventory would be 20 units, and we need to order the EOQ to cover the gross requirement of 100 units)

Period 3: 0 units (since the beginning inventory would be 0 units, and there is no gross requirement for Item F)

Thus, the correct answer is (C) 120 in period 2 and 0 in period 3.

A Firm Has the Following Gross Requirements for Item F