Carl's Computors Eoq Analysis

Carl’s Computers

Part A233 circuit board

Annual cost:

A- 32x52=1664

S- $16

i- 0.23

c- $18

Q- 64

Total material cost= 1664 x $18 = $29,952

Total holding cost= Q/2 x (I x c)= $132.48

Total ordering cost= A/Q x S= $416

Total annual average cost=(Q/2 x (I x c) + (A/Q x S) =$29,952+$132.48+$416=$30,500.48

Weekly demand=32 units/week

Holding cost/unit=Unit cost x 23%=$18x23%=$4.14/unit

Lead time= 7days

EOQ method:

Q=√(2AS/ic) = √(2x1664x16 / .23x18) =114

Annual cost:

Total material cost= 1664 x $18 = $29,952

Total holding cost= Q/2 x (I x c)= $235.98

Total ordering cost= A/Q x S= $233.54

Total annual average cost=(Q/2 x (I x c) + (A/Q x S) =$29,952+$235.98+$233.54=$30,421.52

Part P656 power supply

Annual cost:

A-120 x 52= 5304

S- $2

i- 0.23

c- $35

Q- 350

Total material cost= 5304 x 35=$185,640

Total holding cost= Q/2 x (I x c)= $1,408.75

Total ordering cost= A/Q x S= $30.31

Total annual average cost=(Q/2 x (I x c) + (A/Q x S) =$185,640+$1,408.75+$30.31=$187,079.06

EOQ method:

Q=√(2AS/ic) = √(2x5304x2 / 0.23x35)= 52

Total material cost= 5304 x 35=$185,640

Total holding cost= Q/2 x (I x c)= $209.30

Total ordering cost= A/Q x S= $204

Total annual average cost=(Q/2 x (I x c) + (A/Q x S) =$185,640+$209.30+$204.00=$186,053.30

Should Carl take the $2.00/unit discount?

AD=(120x52) 6240 X $35= $218,400

S= $2

i= 23%

EOQ=√((2x218400x2)/.23)= $1,948.91

Discounted Order Quantity= 200 x $33=$6,600

No discount Discount

Unit price 35 33

Lot size $1948.91 $6,600

Average lot size inventory (Q/2) $975 $3,300

# of orders per year (218,400/1948.91) 113 (218400/6,600) 33

Purchase cost $218,400 (6240x33) $205,920

Inventory carry cost (23%) (975x23%) $224.25 (3,300x23%) $759

Order cost($2) (113x2) $226 (33x2) $66

Total cost $218,850.25 $206,739

Yes, Carl should take the discount. The carrying cost is much larger but the total cost is lower.