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10 September, 21:02

Annual demand equals 1,500 units, delivered purchase cost equals $60/unit, annual inventory carrying cost percentage equals 25% and ordering cost equals $50/order. What is the Economic Order Quantity (EOQ) in units and dollars and how many orders will need to be made in a year?

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  1. 10 September, 22:00
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    EOQ in terms of quantity=100 units

    EOQ in terms of dollars=$6,000

    Order to be made in the year=15 orders

    Explanation:

    The EOQ for the given data in the question shall be determined through following formula:

    EOQ = (2AOc/Hc) ^1/2

    A=Annual demand=1,500

    Oc=Cost per order=$50

    Hc=holding cost per unit=25%*60=$15

    EOQ in terms of quantity = (2*1,500*50/15) ^1/2=100 units

    EOQ in terms of dollars=100*60=$6,000

    Order to be made in the year=Annual demand/EOQ

    =1,500/100=15 orders
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