Moriah's Candle Company manufactures candles. The company buys wax in 45-Kilogram containers that cost $17 each. The company uses 25,000 containers per year, and usage occurs evenly throughout the year. The average cost to carry a 45-Kilogram container in inventory per year is $3, and the cost to place an order is $9. The company works 250 days per year.
The economic order quantity (rounded) is
A)1,000 containers.
B)750 containers.
C)45 containers.
D)387 containers.

Question

Quizplus · Accepted Answer

We can use the Economic Order Quantity (EOQ) formula to determine the optimal order size:

EOQ = sqrt((2DS)/H)

Where:
D = annual demand = 25,000 containers
S = ordering cost = $9
H = holding cost per unit per year = $3
Therefore:
EOQ = sqrt((2 * 25,000 * 9) / 3) = 387 containers (rounded)

Therefore, the best choice is D, ordering 387 containers at a time. This will minimize the total cost of ordering and holding inventory for Moriah's Candle Company.

Moriah's Candle Company Manufactures Candles