Decision-Making Models Math Problem Example | Topics and Well Written Essays - 4000 words

Decision-Making Models - Math Problem ExampleThe researcher states that the amount of inventory that Company A of necessity to effect can be determined with the use of frugal nightspot quantity (EOQ) model. According to WilliamsonEOQ models are used for identifying the optimal high society quantity. In order to do this the model minifys the sum of certain costs that vary with order size and the frequency of orders. Williamson (2012) describes three order size models the basic economic order quantity (EOQ) model the economic production quantity (EPQ) model and the quantity discount model. The basic EOQ model is used to find the order size that would minimize company As total annual cost. The formula and the calculations follow.Q0 = (2DS/H)Where,Q0 is the order quantity in social unitsD is the annual demand in unitsS is the order cost for each order madeH is the holding or carrying the cost for each unit of inventory per yearCompany As information is as follows- Annual demand (D ) is 18,000 units per annum- Ordering cost (S) is $38 per order- Holding cost (H) is 26% of the cost of the inventory which is $12 per unitQ0 = (2 x 18,000 x $38)/(0.26 x $12) = (1,368,000/3.12) = 438461.54 = 662 units = 662 unitsThe results render that the economic order quantity that will minimize total annual cost is 662 units per order.Company A produces the goods that it sells and so the economic production lot size model is the most appropriate model for use in this scenario (Williamson 2012). The formula for performing the calculations that provide the results is as followsQp = (2DS/H) p/(p-u)Where,Qp is the economic run quantityp is the production or delivery rateu is the usage rateQp = (2 x 15,000 x $84)/(0.28 x $19) 60,000/(60,000-15,000)Qp = (2,520,000/5.32) 1.33Qp = 699.25 x 1.15Qp = 791The results indicate that the economic production lot size that will minimize total annual cost id 791 units per production run.