Carter Company orders 250 units at a time, and places 15 orders per year. Total ordering cost is $1,600 and total carrying cost is $1,250. Which of the following statements is true?
A) The economic order quantity (EOQ) is 250.
B) The economic order quantity (EOQ) is more than 250.
C) The economic order quantity (EOQ) is less than 250.
D) Total inventory-related cost is lower than it would be at the economic order quantity (EOQ).
E) None of these.

Question

Quizplus · Accepted Answer

To calculate the EOQ, we use the formula:
EOQ = sqrt((2DS)/H)
where D = annual demand (250 units*15 orders = 3750 units)
S = order cost ($1,600)
H = holding cost per unit ($1,250/3750 units = $0.33 per unit)
Plugging in the values:
EOQ = sqrt((2*3750*1600)/0.33) = 563.5 ~ 564 units
Therefore, the EOQ is more than 250 units.
Option D is incorrect because total inventory-related cost is always lower at the EOQ.

Carter Company Orders 250 Units at a Time, and Places