Use this information to answer the following questions.
A bakery buys sugar in 15-pound bags.The bakery uses 5000 bags of sugar each year.Carrying costs are $20 per bag per year.Ordering costs are estimated at $5 per order.Assume that the bakery is open 250 days a year and its daily demand is estimated at 20 bags.It takes 5 days for each order of sugar to be filled.
-Refer to the information above.What is the optimal number of orders per year?
A)200
B)100
C)500
D)300
E)400

Question

Quizplus · Accepted Answer

The optimal number of orders per year can be calculated using the Economic Order Quantity (EOQ) model. The EOQ formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand (5000 bags), $S$ is the ordering cost per order ($5), and $H$ is the carrying cost per unit per year ($20). Plugging in the values, we get $\sqrt{\frac{2*5000*5}{20}} = \sqrt{2500} = 50$ orders. Since each order is for 100 bags (5000 bags/year ÷ 50 orders/year), and the bakery uses 20 bags a day, the optimal number of orders per year is indeed 100 to minimize costs.

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