A pottery company required 3500 tonnes of clay per annum to produce garden pots and the cost per order was $100 and the carrying cost was $0.80 per tonne.

Required:

a) What would be the economic order quantity of clay (how many tonnes at a time should be ordered)?

EOQ = (2*3500*100)/0.80^0.5

= 935.41 tonnes

b) What would be the reorder point of their clay stocks? (in tonnes)

Lead time is 2 months and usage may vary from 320 maximum to 180 minimum per month.