14-3 Economic Order Quantity
P = 100
D = 6,250
C = 5
1. Compute the economic order quantity for setting up to make one batch.
EOQ = 500
Setup cost = PD/Q
Setup cost = (100 x 6,250)/500
Setup cost = 1,250
3. Compute the annual carrying cost for the EOQ
Carrying cost = CQ/2
Carrying cost = (5 x 500)/2
= 1,250
EOQ = √2PD/C
EOQ = √(2 x 100 x 6,250)/5
2. Compute the annual setup cost for the EOQ. (Note: Do not round the number of
setups per year to a whole number. Instead, consider that the annual setup cost is the
average annual setup cost.)
