Economic Order Quantity Calculation for Rockne's Restaurant
How can Rockne's Restaurant minimize their cost for ordering napkins?
Given data: Rockne's Restaurant currently uses 7300 boxes of napkins each year. The cost to order the boxes of napkins is $21 per order and the annual carrying cost for one box is $1.
Calculation for Economic Order Quantity:
To minimize the cost of ordering napkins, Rockne's Restaurant can utilize the Economic Order Quantity (EOQ) formula.
The EOQ formula is given by:
EOQ = sqrt((2 * D * S) / H)
Where:
- EOQ is the Economic Order Quantity
- D is the annual demand (number of boxes used per year)
- S is the ordering cost per order
- H is the carrying cost per box per year
Given values:
- Annual demand (D) = 7300 boxes
- Ordering cost per order (S) = $21
- Carrying cost per box per year (H) = $1
Substitute the values into the EOQ formula:
EOQ = sqrt((2 * 7300 * 21) / 1) = sqrt(306600) ≈ 554.08
Therefore, Rockne's Restaurant should order approximately 554 boxes of napkins at a time to minimize cost.