Scenario 9.5
Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Dr. Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cost = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
-An item experiences an annual demand of 7,200 units. It costs $8 to hold an item in inventory for one year and $16 to place an order. If the EOQ model is used, what is the time between orders? Assume that there are 52 business weeks in a year.
A) less than 1 week
B) greater than 1 week but less than or equal to 2 weeks
C) greater than 2 weeks but less than or equal to 3 weeks
D) greater than 3 weeks

Question

Quizplus · Accepted Answer

Using the EOQ formula, we have:
EOQ = sqrt((2DS)/H)
Where:
D = annual demand = 7,200 units
S = ordering cost = $16
H = holding cost per unit per year = $8

EOQ = sqrt((2 * 7,200 * 16)/8) ≈ 302 units

The time between orders can be calculated as:
Time between orders = EOQ / demand per week
Demand per week = annual demand / number of weeks in a year = 7,200 / 52 ≈ 138.46 units per week

Time between orders = 302 / 138.46 ≈ 2.18 weeks

Therefore, the time between orders is greater than 1 week but less than or equal to 2 weeks (choice B).

Scenario 9.5 Tom Bergman, Owner and Operator of the Earplug Superstore, Is