Question

MANAGERAIL ECONOMICS:

JVR Company expects to sell about P 1 million this year and the accountant has determined that ordering costs add up to P 200 per order, while carrying costs is 15 % of inventory. Determine how many orders should be made within the year , and the number of units that should be ordered every time an order is placed , if the price of goods per unit is P 150.

The answer must be detailed.

Answer 1

Number of units = 1 million

Ordering cost, C3 = 200 per order

Carrying cost, C1 = 15% of inventory

Price per unit = 150

Carrying cost = 0.15*150 = 22.5

Economic order quantity

$\large EOQ = \sqrt{\frac{2C_3R}{C_1}}$

$\large EOQ = \sqrt{\frac{2*200*1,000,000}{22.5}}$

EOQ = 4216.37 per order.

The economic order quantity is 4216 per order.

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