Mark Achin sells 3,600 electric motors each year.The cost of these is $200 each, and demand is constant throughout the year.The cost of placing an order is $40, while the holding cost is $20 per unit per year.There are 360 working days per year and the lead-time is 5 days.What is his economic order quantity in units?
A)100
B)200
C)60
D)120

Question

Quizplus · Accepted Answer

The formula for Economic Order Quantity is:

EOQ = sqrt[(2DS/H)]

Where:
D = Annual demand
S = Cost of placing an order
H = Holding cost per unit per year

Plugging in the numbers given in the question, we get:

EOQ = sqrt[(2 x 3600 x 40)/20]
EOQ = sqrt[(288000)/20]
EOQ = sqrt[14400]
EOQ = 120

Therefore, the economic order quantity is 120 units. The best choice is option D.

Mark Achin Sells 3,600 Electric Motors Each Year