Ken Ramsing has been in the lumber business for most of his life. Ken’s biggest competitor is Pacific Woods. Through many years of experienc

Question

Ken Ramsing has been in the lumber business for most of his life. Ken’s biggest competitor is Pacific Woods. Through many years of experience, Ken knows that the ordering cost for an order of plywood is $25 and that the carrying cost is 25% of the unit cost. Both Ken and Pacific Woods receive plywood in loads that cost $100 per load. Furthermore, Ken and Pacific Woods use the same supplier of ply- wood, and Ken was able to find out that Pacific Woods orders in quantities of 4,000 loads at a time. Ken also knows that 4,000 loads is the EOQ for Pacific Woods. What is the annual demand in loads of plywood for Pacific Woods?

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Huyền Thanh 3 years 2021-08-15T20:54:13+00:00 1 Answers 10 views 0

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  1. yenoanh
    0
    2021-08-15T20:56:03+00:00
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    Answer: 8,000,000

    Step-by-step explanation:

    Given the following :

    EOQ = 4000

    Ordering cost (S) = $25

    Carrying cost = 25% of unit cost

    Cost per load = $100

    Let annual demand = D

    EOQ = sqrt[ ( 2 * S * D) / H]

    Holding cost = H = 0.25 × $100 = $25

    Hence,

    4000 = sqrt[ ( 2 * 25 * D) / 25]

    4000 = (50D /25)^1/2

    Square both sides

    4000² = 50D / 25

    16,000,000 × 25 = 50D

    400000000 = 50D

    D = 400000000 / 50

    D = 8,000,000

    Hence, annual demand = 8,000,000

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