EOQ Policy

I have the following problem:
A critical piece of operational equipment contains 30 parts of the same type. The equipment operates 24 hours a day and the critical pieces have a predicted failure frequency of 10,000 hours.
If spares are procured as part of an EOQ policy with: cost per unit of $100, cost of preparation and shipping of $25, an estimated cost of managing an item in inventory of 25% of the inventory value, what is the order quantity and annual costs?

I know:
c = item cost per unit = $100
k = fixed cost per order = $25
h = 25% per year

I need to know:
A = annual demand
since I would use the eqn for EOQ:
EOQ = sqrt((2*k*A)/(h*c))

How do I solve for the annual demand so that I can use the equation above to get the order quantity?

© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/accounting/eoq-policy-7gd9

Solution Preview

Probability of each part failing = 8760/10,000 = 0.876

Therefore expected number ...