4. A company makes bicycles. It produces 450 bicycles a month. It buys the tires for bicycles from a supplier at a cost of $20 p

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4. A company makes bicycles. It produces 450 bicycles a month. It buys the tires for bicycles from a supplier at a cost of $20 p

er tire. The company’s inventory carrying cost is estimated to be 15% of cost and the ordering is $50 per order. Calculate the Economic Order Quantity (EOQ). Then from this solution, also calculate the number of orders per year, and average annual ordering cost.

Business

1 answer:

Nady [3.6K] · Answer 1 · 2026-03-15T22:53:52+03:00

Answer:

a. The calculation for the economic order quantity is shown as follows:

= $\sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

where,

Carrying cost = $20 × 15% = 3

Additionally, the annual demand equals 450 bicycles × 12 months × 2 tyres = 10,800

The ordering cost totals $50

Now plug these values into the formula above

From this, we can calculate the value equal to

= $\sqrt{\frac{2\times \text{10,800}\times \text{\$50}}{\text{\$3}}}$

= 600 tires

b. The number of orders calculates to

= Annual demand ÷ economic order quantity

= $10,800 ÷ 600 tires

= 18 orders

c. The average annual ordering cost is given by

= Number of orders × ordering cost

= 18 orders × $50

= $900