Economic Order Quantity
EOQ can is defined as the estimated number of units per given order that creates a balance between the inventory holding cost and the ordering costs. The EOQ assumes that the demand rates are constant, the product prices are constant, the cost of ordering is similar, and the cost of holding is linear (Fauzi, Darti, & Suryanto, 2017). The EOQ will help the business to determine the correct number of movies to be ordered to be able to ensure that the firm can supply enough online videos to the consumers. Using the EOQ, the business will lower the total expenses in ordering, delivery, and even storage. The EOQ will also enable the movie shop to monitor the level of cash that is tied up in the inventory (Fauzi, Darti, & Suryanto, 2017). For the movie shop, inventory acts as the best asset, and it has to ensure that it controls it well for it to generate a high level of profits. Calculating the EOQ is essential for the movie business because it will assist in stocking enough inventory that can help it meet the fluctuations in demand hence bringing about a balancing act. Besides, the EOQ will help the business to lower storage costs and the holding expenses
In managing the movie business, it requires as many critical variables as possible to offer customers top-quality movies to satisfy their needs. Both elements are vital for the movie shop to perform its activities. However, CD ROM acts as an essential variable for the business to access movies from different producers. For my business to reduce the chances of shortages, it will require about 30 CD ROM. The average price of one CD ROM is about $ 5, which translates the ordering cost to $ 150. In my business activities, I anticipate customer demand for 6500 annually. The prices of the movies will be an average of $ 3. Besides, the business expects that 1 unit of a movie will have a holding cost of 25% of the total selling price. The business assumes that the demand for the movies will remain constant throughout the year. The EOQ that will help reduce the holding and ordering expenses for CD ROM is calculated using the following steps.
EOQ= {2 * Annual Demand * Ordering Cost/ Holding Cost} 0.5
EOQ=
Annual demand = 6500 *5
Ordering cost= $ 150
Holding cost = {0.25 *3 *6500}
Hence, EOQ =
[2 *32500 * $150/4875] 0.5
44.721 units
Reference
Fauzi, A. L., Darti, I., & Suryanto, A. (2017, June). Optimal Control on the Economic Order Quantity (EOQ) Model with the Sales Team Initiative. Jurnal Teknik Industri;, 19(1), 21-28. doi:http://dx.doi.org/10.9744/jti.19.1.21-28