Question

Bean Corp. expects total sales of $60,000. The price per unit is $10. The company estimates an ordering cost of $25 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

Answer 1

The correct answer to the following question is 655 units.

Step-by-step explanation:

The formula to take out optimum order size =

`\sqrt{} (2 * annual demand * ordering cost per order)/(holding cost)`

where the annual demand - $60,000 / $10

= 6000 units

Holding cost = $.70

Ordering cost per unit - $25

\sqrt{\frac{2\times 6000 \times \$25}{\$.70}}

= 655 units.

Answer 2

The optimum order size is 2,070 units.

Step-by-step explanation:

For computing the optimum order size, we have to compute the economic order quantity which is shown below:

=
`\sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

where,

annual demand is 60,000

Ordering cost is 25 per order

and carrying cost is 0.70 per unit

Now put the values to the above formula

So, the answer would be

=
`\sqrt{\frac{2* \text{60,000}* \text{25}}{\text{0.70}}}`

= 2,070 units

Hence, the optimum order size is 2,070 units.