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(EOQ model) Suppose your company has carrying costs for a particular inventory item of $0.75 per...

  1. (EOQ model) Suppose your company has carrying costs for a particular inventory item of $0.75 per unit per year. Annual sales of this item are 46,800 units. The fixed order costs are $50 per order. Using the EOQ model, what is the optimal order quantity each time?
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Answer #1

Optimal order quantity as per EOQ Model = (2*Annual Demand*Cost per order/Carrying cost per unit per year)^1/2

= (2*46,800*50/0.75)^1/2

= 2,497.999 units

i.e. 2,498 units

Hence, optimal order quantity = 2,498 units

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