Scenario 9.9
"Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" at the top. He pondered a different approach to shopping for the furry little darlings, reviewed his shopping records, and discovered the following. The price of cat food has held steady at 89 cents per can. Despite feigning indifference, each of the seven cats nibbles their way through an average of one can per day, three hundred sixty five days a year. The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store. The cost to hold a can of cat food is 10% of the unit price.
-Use the information in Scenario 9.9 to determine the average number of orders per year if Geoff adopts an EOQ policy.
A) 3 orders per year
B) 4 orders per year
C) five orders per year
D) six orders per year

Question

Quizplus · Accepted Answer

To calculate EOQ, we need to use the formula: 
EOQ = √[(2DS/H)] 
where D= Annual demand, S= Setup cost, and H= Holding cost per unit.

Annual demand = 7 cats × 1 can per day × 365 days = 2,555 cans 
Setup cost = Cost of each order = Gallons of gas to the store × Cost per gallon = 2 × $3.50 = $7.00 
Holding cost per unit = 10% of 89 cents = $0.089

Plugging these values into the formula: 
EOQ = √[(2 × 2,555 × $7.00)/$0.089] ≈ 572

So, Geoff should order 572 cans of cat food at a time to minimize his total cost. 
The number of orders he would place in a year would be: 
Orders per year = Annual demand / EOQ = 2,555 / 572 ≈ 4.46

Rounding up, the answer is 4 orders per year.

Scenario 9.9 "Gollee Those Cats Sure Go Through a Lot of Food