A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?

Question

Business

Lyons

9 May, 17:59

A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?

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Answers (1)

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Milagros Wilkinson · Answer 1

Approximate EOQ is 109.54 units

Explanation:

Economic order quantity is the level of units ordered which minimize the total cost.

The economic order quantity (EOQ) is computed by applying the following formula

EOQ = [ (2DO) / H ]^1/2

where D = Annual Demand in units

S = Setup or ordering cost

H = Holding or carrying cost per unit, per year.

EOQ = [ (2 x 10,000 x $150) / $1,000 x 25% ]^1/2

EOQ = [ 3,000,000 / 250 ]^1/2

EOQ = 12,000^1/2

EOQ = 109.54 units