Margaret Company has an economic order quantity for item B of 100 units.The annual demand for the product is 1,400 units, and the unit carrying cost per year is $7.What is the cost of placing an order?
A) $8
B) $25
C) $200
D) $2

Question

Quizplus · Accepted Answer

The formula for the cost of placing an order is:

Cost of placing an order = (Annual demand for product/ Economic order quantity) * Cost per order

Plugging in the values, we get:

Cost of placing an order = (1400/100) * Cost per order

We don't have the cost per order, but we can solve for it by using the fact that the economic order quantity is given by:

Economic order quantity = sqrt((2*Annual demand for product*Cost per order)/Unit carrying cost)

Plugging in the values for the economic order quantity and unit carrying cost, and solving for the cost per order, we get:

Cost per order = sqrt((2*1400*$7)/100) = $19.74

Plugging this value back into the cost of placing an order formula, we get:

Cost of placing an order = (1400/100) * $19.74 = $276.36

The closest option to this answer is B: $25.

Margaret Company Has an Economic Order Quantity for Item B