Given: A local computer shop has rented a warehouse. The manager calculated that each computer stored would cost the store \$1.25 per day. Store records show that, on average, 30 computers are sold per day (seven days a week). The manager calculated that it would cost the store $300 to place an order. The order is placed when there are no more computers in the warehouse and assume that delivery of new batch of computers would happen overnight (i.e., instantaneously). Required: Calculate the economic (optimum) order quantity and the time between orders.

The "economic order quantity" or "economic purchase quantity" is the order size that minimises the overall holding costs and ordering charges in inventory management. This is one of the earliest conventional production scheduling concepts.

Holding cost per unit, per day (H) = $1.25

Units sold per day= 30 units

Annual unit demand (D) = 365 x 30 = 10950

Cost of placing an order (O) = 300

Optimal order quantity:

= Square root of ([2*D*O] / H)

= Square root of ( [2 * 10950 * 300] / 1.25)

= Square root of (6,570,000/ 1.25)

= Square root of (5,256,000)

= 2,292.59

The Economic Order Quantity is approximately 2,293 units.

Time taken between orders= 2293/30 = 76.42

That is approximately 76 days.

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