Data Analytics to Predict Solutions
Your company is concerned that too much working capital is tied up in inventory, but at the same time are concerned stockouts. While many companies reorder inventory items based on the number of units they think they will need, a more cost-effective method to determine the optimal order quantity is accomplished by calculating the economic order quantity (EOQ). The costs to be considered are holding costs consisting of storage facility costs and related labor costs; and order costs which consist of shipping and handling costs. One-half of the inventory is on hand at any point in time, and demand is relative even across time. The company’s inventory data and assumed possible order quantities are presented here.
Inventory Cost and Unit Data
Unit Cost
Units
Rate
Annual demand (D)
2,250
Order cost per order (S)
$500
Inventory cost per unit
$250
Holding cost per unit (H)
$25
Cost of borrowing rate
10%
Assumed quantities ordered per year
50100150200250300350400450500550600650700750800850
Use the following template:
- Module 5 CTA Excel File TemplateDownload Module 5 CTA Excel File Template
Requirements
There are four parts to this Assignment. Use Excel to perform the following.
- Use the economic order quantity formula (EOQ = SQRT((2SD/H)) to determine the optimal number of units that the company should order based on each assumed level of order quantities provided in the data.
- Complete the table by calculating the number of orders per year, annual order cost, annual holding cost, and annual total cost. Highlight the minimum annual total cost using conditional formatting. Hint: The minimum cost should equal the cost at the EOQ you calculated in part 1.
- Create a line chart that graphs annual order cost, annual holding cost, and annual total cost. The x-axis should be the quantity ordered. Include a chart legend, appropriate chart title, axes labels, and properly formatted amounts on the axes.
- Examine the chart and your responses to parts 1 and 2. Indicate any relationships.
Submit the provided Excel spreadsheet containing your answers to each of the above requirements. Use Excel functions to make any required calculations described in the requirements. Post your completed Excel spreadsheet containing your answers for your instructor to grade. Submit a Word file detailing your answer to Requirement 4. above regarding indicating and explaining any relationships you identify from examining the chart you prepare and your responses to parts 1 and 2.
