Assume that Fashion Clothiers Inc. uses 1,440,000 yards of material each year. Further, assume that Fashion can order the material at a cost of $2 per yard, plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.
-What is the firm's EOQ?
A) 26,833
B) 30,040
C) 43,987
D) 13,563
E) 21,456

Question

Quizplus · Accepted Answer

The EOQ is 26,833 yards. This can be calculated using the following formula:EOQ = √(2*D*O)/Hwhere:D = annual demand (1,440,000 yards)O = ordering cost ($100 per order)H = carrying cost (20% of inventory value, at cost)Plugging in the values, we get:EOQ = √(2*1,440,000*100)/0.20= √(288,000,000)/0.20= 26,833 yards

Assume That Fashion Clothiers Inc