Parker's Market sells 9,000 units a year of a product at a price of $4.95 each. The variable cost per unit is $3.30 and the carrying cost per unit is $.65. You have been buying 500 units at a time. Your fixed cost of ordering is $40. What is the economic order quantity?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) is calculated using the formula: $EOQ = \sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand (9,000 units), $S$ is the ordering cost ($40), and $H$ is the carrying cost per unit ($.65). Plugging in the values: $EOQ = \sqrt{\frac{2*9000*40}{0.65}} \approx 1052$ units.

Parker's Market Sells 9,000 Units a Year of a Product