Massa Machine Tool expects total sales of $10,000.The price per unit is $5.The firm estimates an ordering cost of $7.50 per order,with an inventory carrying cost of $0.70 per unit.What is the optimum order size?
A) 146 units
B) 207 units
C) 373 units
D) 2,000 units

Question

Quizplus · Accepted Answer

We can use the economic order quantity (EOQ) formula to find the optimum order size:
EOQ = sqrt[(2DS)/H]
where D = total demand (in units), S = ordering cost per order, and H = inventory carrying cost per unit.

In this case, D = 10,000/5 = 2,000 units (since each unit is sold for $5 and the total sales are $10,000), S = $7.50, and H = $0.70. Plugging these values into the formula, we get:

EOQ = sqrt[(2 x 2,000 x 7.5)/0.7] = 206.60

Since we can't order a fractional number of units, we round up to the nearest whole number, giving an optimum order size of 207 units. Therefore, the best choice is B.

Massa Machine Tool Expects Total Sales of $10,000