The economic order quantity tells you how many items you should order to minimize overall costs, but you can’t always order that amount. Learn how to calculate the increased cost of constrained purchases.
- [Instructor] The economic order quantity…tells you how many items you should order…to minimize overall costs, but you can't…always order that amount.…In this movie, I will show you how to calculate…the increased cost of constrained purchases.…If those costs are high enough,…you might investigate ways to get around the constraints.…To demonstrate these calculations,…I will use the constrained quantities workbook,…you can find that in the chapter four folder…of the exercise files collection.…At the top of the worksheet, I have the calculation…for the economic order quantity.…
I'm assuming a setup cost of $120,…my flow rate per week of 2,100 items,…a holding cost per week per item of $0.25,…and that results in an economic order quantity of 1419.86,…rounding up to 1420.…Below those numbers, I have a table,…where I have a series of quantities,…going from 200 and then increasing in increments…of 200 to 7,000.…
So the assumption is that for some reason…I'm constrained to order either 200, 400, 600,…whatever items, and I want to see how much extra…
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- Drawing process flow diagrams
- Calculating process capacity
- Identifying bottlenecks
- Determining cycle time and idle time
- Calculating labor
- Calculating utilization
- Analyzing batch processes
- Calculating optimal order quantities