EOQ and EPQ exercises
1. The demand for spring water at the Company X is 600 litres per week. The setup cost for placing an
order to replenish inventory is $25. The order is delivered by the supplier which charges X $0.10/liter
for the cost of transportation. This transportation cost increases the cost of water to $1.25/liter. The
water loses its freshness while stored at the company. To account for this, the company charges an
annual holding cost of $2.6/liter. Determine how often the company should order for water and what
size each order should be.
2. A local company produces a programmable FPGA. They have experienced a flat demand of 2500 units
per year for the product. The board is produced at a rate of 10.000 units per year. The accounting
department has estimated that it costs $50 to initiate a production run, each unit costs the company
$1.2 to manufacture, and the cost of holding is based on a 30% annual interest rate. Determine the
optimal size of a production run, the length of each production run, and the average annual cost of
holding and setup. What is the maximum level of on-hand inventory of the boards?
3. A computer company sells 300.000 computers at a constant rate. The company owns a factory and
produces all computers. The production setup cost is $6600. The producing cost is $500/computer.
Holding cost is $30/computer/year. Production rate is 500000 computers/year. What is the optimum
order quantity, cycle time, how many production runs per year?
1. The demand for spring water at the Company X is 600 litres per week. The setup cost for placing an
order to replenish inventory is $25. The order is delivered by the supplier which charges X $0.10/liter
for the cost of transportation. This transportation cost increases the cost of water to $1.25/liter. The
water loses its freshness while stored at the company. To account for this, the company charges an
annual holding cost of $2.6/liter. Determine how often the company should order for water and what
size each order should be.
2. A local company produces a programmable FPGA. They have experienced a flat demand of 2500 units
per year for the product. The board is produced at a rate of 10.000 units per year. The accounting
department has estimated that it costs $50 to initiate a production run, each unit costs the company
$1.2 to manufacture, and the cost of holding is based on a 30% annual interest rate. Determine the
optimal size of a production run, the length of each production run, and the average annual cost of
holding and setup. What is the maximum level of on-hand inventory of the boards?
3. A computer company sells 300.000 computers at a constant rate. The company owns a factory and
produces all computers. The production setup cost is $6600. The producing cost is $500/computer.
Holding cost is $30/computer/year. Production rate is 500000 computers/year. What is the optimum
order quantity, cycle time, how many production runs per year?
