Royal Jewelry Corporation produces quality jewelry items for various retailers.For the coming year,it has estimated it will consume 500 ounces of gold.Its carrying costs for a year are $2 per ounce.No safety stock is maintained.If the EOQ is 100 ounces,what is the cost per order?

Question

Quizplus · Accepted Answer

EOQ (economic order quantity) = √ [(2 x demand x setup cost) / (holding cost per unit)]
Here, demand = 500 ounces, holding cost per unit = $2, EOQ =100 ounces. 
Setting up the order incurs a cost, and since there are 5 orders (500/100), the cost per order is: 
= Total setup cost / number of orders
= [(demand/EOQ) x setup cost] / (demand/EOQ)
= (500/100) x $100 / (500/100)
= $100
Therefore, the cost per order is $100/5 = $20. 
Hence, the best choice is B.

Royal Jewelry Corporation Produces Quality Jewelry Items for Various Retailers