Driveline Sprockets expects total sales of $20,000. The price per unit is $5. The firm estimates an ordering cost of $9.00 per order, with an inventory cost of $1.20 per unit. What is the optimum order size?

Question

Quizplus · Accepted Answer

Total demand = $20,000/$5 = 4,000 units

Using the economic order quantity (EOQ) formula: 
EOQ = sqrt((2*annual demand*ordering cost)/inventory cost)
EOQ = sqrt((2*4,000*$9)/$1.20)
EOQ = 244.95 or 245 units (rounded up to nearest unit)

Therefore, the optimum order size is 245 units.

Driveline Sprockets Expects Total Sales of $20,000