Question

If monthly demand for a product is 1,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per unit per year, how many units would be the order quantity that minimizes annual ordering and holding costs

Answer 1

240 units

Step-by-step explanation:

The Economic Order Quantity (EOQ) is the order quantity that minimizes annual ordering and holding costs. It is calculated as :

EOQ = √(2 x annual demand x cost per order) ÷ holding cost per unit

therefore,

EOQ = √(2 x 1,000 x 12 x $6) ÷ $2.50

= √57,600

= 240 units

Thus, 240 units would be the order quantity that minimizes annual ordering and holding costs