A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order
A) all 4000 units at one time
B) 200 units per order
C) every 20 days
D) 10 times per year
E) none of the above

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) model is used to find the cost-minimizing solution for ordering inventory. The EOQ formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand, $S$ is the ordering cost, and $H$ is the holding cost per unit per year. Plugging in the given values ($D=4000$, $S=20$, $H=4$), we get $\sqrt{\frac{2*4000*20}{4}} = \sqrt{40000} = 200$. Therefore, ordering 200 units per order minimizes the total cost.

A Product Has Demand of 4000 Units Per Year