Carter Company orders 250 units at a time, and places 15 orders per year. Total ordering cost is $1,100 and total carrying cost is $1,100. 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

Based on the given information, we can calculate the EOQ using the formula:

EOQ = sqrt((2 * D * S) / H)

Where D = annual demand (250 x 15 = 3,750), S = ordering cost ($1,100), and H = holding cost ($1,100).

Plugging in the values, we get:

EOQ = sqrt((2 * 3,750 * 1,100) / 1,100) = sqrt(7,500) = 86.6

Since the company orders in multiples of 250, the EOQ would be rounded up to 250. Therefore, statement A is true and the best choice.

Carter Company Orders 250 Units at a Time, and Places