Learning Goal: I’m working on a engineering question and need an explanation and answer to help me learn.
Revisit the example EOQ problem we did in class, where demand was 1000 units/yr., setup cost was $500 per setup, and holding costs were $35/unit/yr. Create a graph showing annual setup cost, annual holding cost, and annual total inventory cost against order quantity (note: you do not need to plot the annual production cost). You may use a software package such as Excel, or plot neatly by hand. Then calculate the optimum lot size, and indicate it on the graph. What observations can you make?