Newcastle Company has determined the following costs are associated with one of its products.$E = E$ conomic order quantity (EOQ)
$\mathrm { Q } =$ Annual quantity used in units $\quad $ $\quad $ $\quad $ $\quad $ $\quad $3000
$P =$ Cost of placing one order ( $( £ )$ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $10
$C = A$ nnual cost of carrying one unit in stock (£) $\quad $0.8
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If the cost of placing an order is reduced to £6 the economic order quantity (EOQ) is

A)100 units.
B)274 units.
C)212 units.
D)250 units.

Question

Newcastle Company has determined the following costs are associated with one of its products.$E = E$ conomic order quantity (EOQ)
$\mathrm { Q } =$ Annual quantity used in units $\quad $ $\quad $  $\quad $ $\quad $ $\quad $3000
$P =$ Cost of placing one order ( $( £ )$ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $10
$C = A$ nnual cost of carrying one unit in stock (£) $\quad $0.8
-
If the cost of placing an order is reduced to £6 the economic order quantity (EOQ) is

A)100 units.
B)274 units.
C)212 units.
D)250 units.

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2PQ}{C}}$. With the original cost of placing an order (P) at £10, the EOQ is calculated as $\sqrt{\frac{2*10*3000}{0.8}} = 244.95$, which is not an option provided. However, when the cost of placing an order is reduced to £6, the EOQ recalculates to $\sqrt{\frac{2*6*3000}{0.8}} = 200$, which is not directly an option provided, indicating a mistake in the calculation. Correctly recalculating with P = £6, the EOQ formula should be applied as follows: $\sqrt{\frac{2*6*3000}{0.8}}$, which actually results in approximately 212 units, considering rounding or calculation adjustments. This suggests a miscalculation in the initial explanation provided. The correct calculation with P = £6 should indeed yield an answer close to one of the provided options, aligning with the principles of EOQ.

Newcastle Company Has Determined the Following Costs Are Associated with One