1.

Using the information in Problem 16, calculate the following:

a) The economic order quantity
b) The total annual costs using the EOQ ordering policy
c) The penalty costs Sam is incurring by using his current policy

Answer:
2 DS 2(7800)(20)
Q 
a) H 3 = 322.5 units

b) Total annual costs = (D/Q)S + (Q/2)H = (7800/322.5)20 + (322.5/2)3 = $967.50

c) Penalty costs incurred by Sam = $1,215 – $967.50 = $247.50