Economic Order Quantity (EOQ) Calculation for Napkins Order

How is the time between orders (order cycle) calculated based on the Economic Order Quantity for napkins order?

a. 125 days

b. 75.3 days

c. 32.8 days

d. 29.2 days

Answer:

The economic order quantity (EOQ) formula is used to determine the optimal order quantity to minimize ordering and carrying costs. Plugging the given values into the formula, we find that the order quantity is 125 boxes. Therefore, the time between orders (order cycle) is 125 days.

The economic order quantity (EOQ) formula is used to determine the optimal order quantity to minimize ordering and carrying costs. The formula is given by:

EOQ = sqrt((2 * demand * order cost) / carrying cost)

In this case, the demand is 62,500 boxes per year, the order cost is $200.00, and the carrying cost is $1.00 per box per year. Plugging these values into the formula, we can solve for the order quantity. Once we have the order quantity, we can calculate the time between orders (order cycle) by dividing the total number of boxes by the order quantity.

EOQ = sqrt((2 * 62,500 * 200.00) / 1.00) = 125 boxes

Time between orders = 62,500 / 125 = 500 days

Therefore, the correct answer is a. 125 days.