Figure 20 - 1 Jan's Candle Company manufactures candles.The company buys wax in 100-pound containers that cost $15 each.The company uses 20,000 containers per year, and usage occurs evenly throughout the year.The average cost to carry a 100-pound container in inventory per year is $2, and the cost to place an order is $10.The company works 250 days per year.
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Refer to Figure 20-1.The economic order quantity (rounded) is
A) 894 containers.
B) 632 containers.
C) 447 containers.
D) 100 containers.

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) is calculated using the formula: EOQ = sqrt((2DS)/H), where D is the demand (20,000 containers), S is the order cost ($10), and H is the holding cost ($2). Plugging in these values gives EOQ = sqrt((2*20000*10)/2) = sqrt(200000) = 447 containers.

Figure 20 - 1 Jan's Candle Company Manufactures Candles