Question

M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 250 ​units, and this is constant throughout the year. Carrying cost is estimated to be ​$0.25 per unit per​ year, and the ordering​ (setup) cost is ​$21 per order. To minimize cost, how many units should be ordered each time an order is placed?

Answer 1

205 units

Step-by-step explanation:

In this question, we have to compute the economic order quantity which is shown below:

The formula to calculate the economic order quantity is shown below:

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

=
`\sqrt{\frac{2* \text{250}* \text{\$21}}{\text{\$0.25}}}`

= 205 units

In these units, the ordering cost and the carrying cost are equal so that no wastage of the stock is done and it tells about the minimum inventory the company has to produced.