Evaluating the Economic Order Quantity for Napkins at a Restaurant

How can a restaurant determine the optimal number of orders to place for napkins throughout the year?

Considering a constant daily rate of napkin usage at a restaurant, what factors should be taken into account to find the economic order quantity?

Answer:

By calculating the economic order quantity (EOQ) based on the annual demand, ordering cost per order, and carrying cost per unit per year, a restaurant can determine the optimal number of orders to place for napkins throughout the year.

For a restaurant that currently uses 62,500 boxes of napkins each year at a constant daily rate, the cost to order napkins is $200.00 per order, and the annual carrying cost for one box of napkins is $1.00. By applying the EOQ formula, the restaurant can minimize total inventory costs and efficiently manage napkin orders.

The EOQ formula is:

EOQ = √((2 * D * S) / H)

Where:

D = Annual demand = 62,500 boxes

S = Ordering cost per order = $200.00

H = Carrying cost per unit per year = $1.00

Substituting the values into the formula:

EOQ = √((2 * 62,500 * 200) / 1)

EOQ = √(25,000,000)

EOQ = 5,000

Therefore, the restaurant should order the economic order quantity of 5,000 boxes of napkins each time an order is placed. To determine the number of orders placed during the year, the total annual demand (62,500) should be divided by the EOQ:

Number of orders = 62,500 / 5,000 = 12.5

Thus, the restaurant would place 13 orders during the year to meet its napkin supply needs efficiently while minimizing costs.