Economic Order Quantity for Napkins Calculation
How can we calculate the economic order quantity for napkins?
Given an annual demand of 62,500 boxes, a ordering cost of $200.00 per order, and an annual carrying cost of $1.00 per box, what is the economic order quantity for napkins?
Calculation for Economic Order Quantity (EOQ) for Napkins
The economic order quantity (EOQ) is a formula used to determine the optimal order quantity for a business to minimize total inventory costs. In this case, we are calculating the EOQ for napkins based on the given data.
To calculate the EOQ for napkins, we can use the formula:
EOQ = √((2 * D * S) / H)
Where:
D = Annual demand (in units)
S = Ordering cost per order
H = Annual carrying cost per unit
Given:
Annual demand (D) = 62,500 boxes
Ordering cost per order (S) = $200.00
Annual carrying cost per box (H) = $1.00
Now, let's plug in the values:
EOQ = √((2 * 62,500 * 200) / 1)
EOQ = √((2 * 12,500,000) / 1)
EOQ = √(25,000,000)
EOQ ≈ 5,000 boxes of napkins
Therefore, the economic order quantity for napkins is approximately 5,000 boxes. This means that the restaurant should order 5,000 boxes at a time to minimize the total cost of ordering and carrying inventory. Ordering more or fewer boxes would result in higher overall costs.