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  4.3 Re-order quantity
  ● The re-order quantity is the amount of the item of stock to be ordered each time the re-order level is reached.
  ● The re-order quantity will be the same amount each time an order is placed.
  To minimize stockholding and stock ordering costs, it should be the EOQ.
  Formula
  Economic Order Quantity (EOQ)
  EOQ = √ 2Co D ( Given in the exams)
  Ch
  Holding costs Q/2 * Ch
  Ordering cost D/Q * Co
  Total cost √ 2D Co Ch
  Co = Cost of placing one order
  Ch = Cost of holding one unit for one year
  D = Annual demand for stock item
  Q = the order quantity
  ● Annual stockholding costs = average stock * holding cost for one unit per annum
  = Q/2 * Ch
  Note: average stock = safety stock + 1/2 reorder quantity
  ● Annual stock ordering costs = No. of orders x ordering costs per order
  = D/Q x Co
  Example 1:
  W Ltd. is a retailer of beer barrels. The company has an annual demand of 36750 barrels. The barrels cost $12 each. Fresh supplies can be obtained immediately, but ordering costs and the cost of carriage inwards are $200 per order. The annual cost of holding one barrel in stock is 10% of the purchase cost.
  Require: the total annual cost of EOQ
  Solution:
  D = 36750
  Ch = 12 x 10% = 1.2
  Co = 200
  EOQ = √ 2Co D
  Ch
  = √ 2 x 200 x 36750
  1.2
  = 3,500 barrels
  Total annual costs = holding cost + reordering costs
  = average stock x Ch + Number of order per annual x Co
  = 3500 x $1.2 + 36750 x $200
  2 3500
  = $2100 + $2100 = $4200
  EOQ and Bulk Purchase Discounts
  Frequently, discounts are offered for large quantity orders. These are often called bulk purchase discounts. The problem to consider is that if the order quantity to obtain the bulk discount is larger than the EOQ, is the discount worth taking?
  The steps involved are as follows:
  (1)。 Calculate EOQ, ignoring discounts
  (2)。 If the EOQ is smaller than the minimum purchase quantity to obtain a bulk
  discount, calculate the total for the EOQ of the annual stockholding costs,
  ordering costs and purchase cost
  (3)。 Recalculate annual stockholding costs, ordering costs and purchase costs for a
  purchase order size that is only just large enough to qualify for the bulk discount.
  (4)。 Compare the total costs of EOQ and the order quantity just large enough to obtain
  the discount.
  小编寄语:奋斗没有终点,任何时候都是一个起点。
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