11-10-2019, 05:54 PM

Blog Entry: http://edspi31415.blogspot.com/2019/11/h...ntity.html

Introduction

In inventory control, a business may try to determine the optimum level of inventory, which is known as the economic ordering quantity. There are several ways to calculate the economic ordering quantity, each with various approaches of what variables and factors to use. This blog entry will explore two approaches, as described by the HP Step by Step Solutions For Your HP Calculator book for marketing and sales. (see source)

Economic Ordering Quantity Knowing Costs and Sales

A simple approach to determining economic ordering quantity is by use of the following formula:

EOQ = √(2 * CPO * SALES / ( UNIT_COST * HOLD%) )

where:

EOQ = economic ordering quantity

CPO = the cost of place an order

SALES = the company's annual sales

UNIT_COST = cost per unit of inventory

HOLD% = holding cost as a rate of inventory costs

HP 12C Program:

Instructions:

Store the following values:

R1 = CPO

R2 = SALES

R3 = HOLD%

R4 = UNIT_COST

Press R/S to calculate EOQ, which is stored in R0.

Example:

R1 = CPO = $35.00

R2 = SALES = 10,000 units

R3 = HOLD% = 20% of inventory value

R4 = UNIT_COST = $4.73 cost per inventory unit

Result:

CPO = 860.21

Economic Ordering Quantity Factoring Discounts and Taxes

This next calculation adds discounts rates, units used, and income taxes.

EOQ = √(( 2 * (1 - TAX%) * CPO * UNITS_USED)

/ ( (1 - TAX%) * HOLD% * UNIT_COST + DISCOUNT% * UNIT_COST))

where:

EOQ = economic ordering quantity

TAX% = income tax rate

CPO = the cost of place an order

UNITS_USED = inventory units used in a year

UNIT_COST = cost per unit of inventory

HOLD% = holding cost as a rate of inventory costs

DISCOUNT% = discount rate

HP 12C Program:

Instructions:

Store the following values:

R1 = TAX% = income tax*

R2 = CPO

R3 = UNITS_USED

R4 = HOLD%

R5 = UNIT_COST

R6 = DISCOUNT%

R1 gets recalculated as (1 - TAX%)

Press R/S to calculate EOQ, which is stored in R0.

Example:

R1 = TAX% = 22%

R2 = $150.00

R3 = 24,000 units

R4 = 5.1% holding cost

R5 = $8.00 per unit

R6 = 2% discount

Results:

CPO = 3,426.81

Source:

"HP Step By Step Solutions For Your HP Calculator: Marketing and Sales: HP-17B, HP-19B, HP-27S" Hewlett Packard. January 1988. Edition 1

Introduction

In inventory control, a business may try to determine the optimum level of inventory, which is known as the economic ordering quantity. There are several ways to calculate the economic ordering quantity, each with various approaches of what variables and factors to use. This blog entry will explore two approaches, as described by the HP Step by Step Solutions For Your HP Calculator book for marketing and sales. (see source)

Economic Ordering Quantity Knowing Costs and Sales

A simple approach to determining economic ordering quantity is by use of the following formula:

EOQ = √(2 * CPO * SALES / ( UNIT_COST * HOLD%) )

where:

EOQ = economic ordering quantity

CPO = the cost of place an order

SALES = the company's annual sales

UNIT_COST = cost per unit of inventory

HOLD% = holding cost as a rate of inventory costs

HP 12C Program:

Code:

`Step; Key Code; Key`

01; 2 ; 2

02; 45, 1; RCL 1

03; 20; *

04; 45, 2; RCL 2

05; 20; *

06; 45, 3; RCL 3

07; 45, 4; RCL 4

08; 25; %

09; 34; x<>y

10; 35; R↓

11; 10; ÷

12; 43, 21; √

13; 44, 0; STO 0

14; 43,33,00; GTO 00

Store the following values:

R1 = CPO

R2 = SALES

R3 = HOLD%

R4 = UNIT_COST

Press R/S to calculate EOQ, which is stored in R0.

Example:

R1 = CPO = $35.00

R2 = SALES = 10,000 units

R3 = HOLD% = 20% of inventory value

R4 = UNIT_COST = $4.73 cost per inventory unit

Result:

CPO = 860.21

Economic Ordering Quantity Factoring Discounts and Taxes

This next calculation adds discounts rates, units used, and income taxes.

EOQ = √(( 2 * (1 - TAX%) * CPO * UNITS_USED)

/ ( (1 - TAX%) * HOLD% * UNIT_COST + DISCOUNT% * UNIT_COST))

where:

EOQ = economic ordering quantity

TAX% = income tax rate

CPO = the cost of place an order

UNITS_USED = inventory units used in a year

UNIT_COST = cost per unit of inventory

HOLD% = holding cost as a rate of inventory costs

DISCOUNT% = discount rate

HP 12C Program:

Code:

`Step; Key Code; Key`

01; 1 ; 1

02; 45, 1; RCL 1

03; 25 ; %

04; 30 ; -

05; 44,1; STO 1

06; 2 ; 2

07; 20 ; *

08; 45, 2 ; RCL 2

09; 20 ; *

10; 45, 3 ; RCL 3

11; 20 ; *

12; 44, 0 ; STO 0

13; 45, 5 ; RCL 5

14; 45, 4 ; RCL 4

15; 25 ; %

16; 45, 1 ; RCL 1

17; 20 ; *

18; 45, 5 ; RCL 5

19; 45, 6 ; RCL 6

20; 25 ; %

21; 34 ; X<>Y

22; 33; R↓

23; 40; +

24; 45, 0 ; RCL 0

25; 34 ; X<>Y

26; 10 ; ÷

27; 43, 21 ; √

28; 44, 0 ; STO 0

29; 43, 33, 00 ; GTO 00

Instructions:

Store the following values:

R1 = TAX% = income tax*

R2 = CPO

R3 = UNITS_USED

R4 = HOLD%

R5 = UNIT_COST

R6 = DISCOUNT%

R1 gets recalculated as (1 - TAX%)

Press R/S to calculate EOQ, which is stored in R0.

Example:

R1 = TAX% = 22%

R2 = $150.00

R3 = 24,000 units

R4 = 5.1% holding cost

R5 = $8.00 per unit

R6 = 2% discount

Results:

CPO = 3,426.81

Source:

"HP Step By Step Solutions For Your HP Calculator: Marketing and Sales: HP-17B, HP-19B, HP-27S" Hewlett Packard. January 1988. Edition 1