The cost of a widget is $5,and the carrying rate is 40%;cost of processing an order is $25,annual demand is for 400 widgets,and supply and usage patterns are stable.What is the economic order quantity (EOQ)?
A)5
B)20
C)25
D)100
E)200

Question

Quizplus · Accepted Answer

EOQ formula = sqrt((2DS)/H)
where D = annual demand, S = cost of processing an order, and H = carrying rate.
Plugging in the values, we get:
EOQ = sqrt((2*400*25)/0.4*5) = sqrt(10,000) = 100

Therefore, the best choice is D, with an EOQ of 100, which minimizes the total cost of ordering and carrying inventory.

The Cost of a Widget Is $5,and the Carrying Rate