Question

The demand for a product is 12,500 units for a three month period. Each unit of product has a purchase price of $15 and ordering costs are $20 per order placed. The annual holding cost of one unit of product is 10% of its purchase price. What is the Economic Order Quantity (to the nearest unit)?

Answer 1

Units required for 3 months = 12,500

Hence, annual demand for 12 months= 12,500 x 4 = 50,000 units.

Ordering cost = $20

Holding cost= $15 x 10% = $1.50

Formula of Economic Order Quantity (EOQ) =√ (2 x Annual Demand x Ordering cost) / holding cost

Therefore, substituting,

Economic order quantity (EOQ) = √(2 x 50000 x $20)/$1.5 = 1154.70 units approx 1155 units.

Answer 2

1000000000000000000000000