EOQ Essay

IntroductionDetermine the order size of it for Company A in the scenario strand in the attached QAT1 Task 3 Spreadsheet that would minimize total annual cost by using the economic order total model, showing only of your work.Economic order quantity model is an in inventory related equating that helps in determining the optimum order quantity that a ships company should hold in its inventory given a cost of production, demand set up and other variables. This is always done to help in minimizing the variables inventory costs. The equation is given byEOQ =WhereA= Setup costsCp = Demand rateP = Production costI = Interest rate (considered an opportunity cost, so the risk-free rate can be used)EOQ = (2 * 400,000 * 42)/ (3% * 500)= 33600000/ 15= Sr. 2240000=1,497 computersIdentify what Company A should do with the information determined in part AThe economic order quantity (EOQ) is the order quantity that minimizes total holding and ordering costs for the year. Even if all the assump tions dont hold exactly, the EOQ gives us a good indication of whether or not current order quantities are reasonable(Steven, 2009). Therefore, the company uses EOQ in ensuring that the quantity be produced is optimal and is cost in effect(p) hence help the production and marketing departments to be effective in terms of production.Order QuantityHolding approachOrder Cost tangible CostShortage CostTotal CostQhC(Q/2)(R/Q)SCR(B(Q-n)2)/2QTC99.78$748.33$168,374.58$200,000,000.00$0.00$200,169,122.91199.56$1,496.66$84,187.29$200,000,000.00$0.00$200,085,683.95299.33$2,244.99$56,124.86$200,000,000.00$0.00$200,058,369.86399.11$2,993.33$42,093.65$200,000,000.00$0.00$200,045,086.97498.89$3,741.66$33,674.92$200,000,000.00$0.00$200,037,416.57598.67$4,489.99$28,062.43$200,000,000.00$0.00$200,032,552.42698.44$5,238.32$24,053.51$200,000,000.00$0.00$200,029,291.83798.22$5,986.65$21,046.82$200,000,000.00$0.00$200,027,033.47898.00$6,734.98$18,708.29$200,000,000.00$0.00$200,025,443.27997.78$7,483.31 $16,837.46$200,000,000.00$0.00$200,024,320.771097.55$8,231.65$15,306.78$200,000,000.00$0.00$200,023,538.431197.33$8,979.98$14,031.22$200,000,000.00$0.00$200,023,011.191297.11$9,728.31$12,951.89$200,000,000.00$0.00$200,022,680.201396.89$10,476.64$12,026.76$200,000,000.00$0.00$200,022,503.401496.66$11,224.97$11,224.97$200,000,000.00$0.00$200,022,449.941596.44$11,973.30$10,523.41$200,000,000.00$0.00$200,022,496.721696.22$12,721.64$9,904.39$200,000,000.00$0.00$200,022,626.021796.00$13,469.97$9,354.14$200,000,000.00$0.00$200,022,824.111895.77$14,218.30$8,861.82$200,000,000.00$0.00$200,023,080.121995.55$14,966.63$8,418.73$200,000,000.00$0.00$200,023,385.362095.33$15,714.96$8,017.84$200,000,000.00$0.00$200,023,732.802195.11$16,463.29$7,653.39$200,000,000.00$0.00$200,024,116.682294.88$17,211.62$7,320.63$200,000,000.00$0.00$200,024,532.262394.66$17,959.96$7,015.61$200,000,000.00$0.00$200,024,975.562494.44$18,708.29$6,734.98$200,000,000.00$0.00$200,025,443.272594.22$19,456.62$6,475.95$200,000 ,000.00$0.00$200,025,932.562693.99$20,204.95$6,236.10$200,000,000.00$0.00$200,026,441.052793.77$20,953.28$6,013.38$200,000,000.00$0.00$200,026,966.662893.55$21,701.61$5,806.02$200,000,000.00$0.00$200,027,507.632993.33$22,449.94$5,612.49$200,000,000.00$0.00$200,028,062.43QLine149701497200022449.9Determine the lot size for Company B in the scenario found in the attached QAT1 Task 3 Spreadsheet that would minimize total annual cost by using the economic production lot size model, showing all of your work.Economic order quantity model is an in inventory related equation that helps in determining the optimum order quantity that a company should hold in its inventory given a cost of production, demand rate and other variables. This is always done to help in minimizing the variables inventory costs. The equation is given byEOQ =WhereA= Setup costsCp = Demand rateP = Production costI = Interest rate (considered an opportunity cost, so the risk-free rate can be used)EOQ = (2 * 5200,000 * 500 )/ (4% * 250)= 5,200,000,000/ 10= Sr. 520,000,000= 22804 computersIdentify what Company B should do with the information determined in part BThe economic order quantity (EOQ) is the order quantity that minimizes total holding and ordering costs for the year. Even if all the assumptions dont hold exactly, the EOQ gives us a good indication of whether or not current order quantities are reasonable (Steven, 2009). Therefore, the company uses EOQ in ensuring that the quantity being produced is optimal and is cost effective hence help the production and marketing departments to be effective in terms of production.Order QuantityHolding CostOrder CostMaterial CostShortage CostTotal CostQhC(Q/2)(R/Q)SCR(B(Q-n)2)/2QTC1520.23$7,601.17$1,710,263.14$1,300,000,000.00$0.00$1,301,717,864.313040.47$15,202.34$855,131.57$1,300,000,000.00$0.00$1,300,870,333.914560.70$22,803.51$570,087.71$1,300,000,000.00$0.00$1,300,592,891.226080.94$30,404.68$427,565.78$1,300,000,000.00$0.00$1,300,457,970.467601.17$38 ,005.85$342,052.63$1,300,000,000.00$0.00$1,300,380,058.489121.40$45,607.02$285,043.86$1,300,000,000.00$0.00$1,300,330,650.8710641.64$53,208.19$244,323.31$1,300,000,000.00$0.00$1,300,297,531.4912161.87$60,809.36$213,782.89$1,300,000,000.00$0.00$1,300,274,592.2513682.11$68,410.53$190,029.24$1,300,000,000.00$0.00$1,300,258,439.7615202.34$76,011.70$171,026.31$1,300,000,000.00$0.00$1,300,247,038.0116722.57$83,612.86$155,478.47$1,300,000,000.00$0.00$1,300,239,091.3318242.81$91,214.03$142,521.93$1,300,000,000.00$0.00$1,300,233,735.9619763.04$98,815.20$131,558.70$1,300,000,000.00$0.00$1,300,230,373.9121283.27$106,416.37$122,161.65$1,300,000,000.00$0.00$1,300,228,578.0322803.51$114,017.54$114,017.54$1,300,000,000.00$0.00$1,300,228,035.0924323.74$121,618.71$106,891.45$1,300,000,000.00$0.00$1,300,228,510.1625843.98$129,219.88$100,603.71$1,300,000,000.00$0.00$1,300,229,823.6027364.21$136,821.05$95,014.62$1,300,000,000.00$0.00$1,300,231,835.6728884.44$144,422.22$90,013.85$1,300,000,000.00$0.00$1 ,300,234,436.0730404.68$152,023.39$85,513.16$1,300,000,000.00$0.00$1,300,237,536.5531924.91$159,624.56$81,441.10$1,300,000,000.00$0.00$1,300,241,065.6633445.15$167,225.73$77,739.23$1,300,000,000.00$0.00$1,300,244,964.9634965.38$174,826.90$74,359.27$1,300,000,000.00$0.00$1,300,249,186.1736485.61$182,428.07$71,260.96$1,300,000,000.00$0.00$1,300,253,689.0338005.85$190,029.24$68,410.53$1,300,000,000.00$0.00$1,300,258,439.7639526.08$197,630.41$65,779.35$1,300,000,000.00$0.00$1,300,263,409.7641046.32$205,231.58$63,343.08$1,300,000,000.00$0.00$1,300,268,574.6642566.55$212,832.75$61,080.83$1,300,000,000.00$0.00$1,300,273,913.5744086.78$220,433.92$58,974.59$1,300,000,000.00$0.00$1,300,279,408.5145607.02$228,035.09$57,008.77$1,300,000,000.00$0.00$1,300,285,043.86QLine228040228041300228035ReferenceSteven A. (2009) Management lore Applications in Project Management Project Management LP Models in Scheduling, Integer Programming www.eng.umd.edu/sgabriel. uk