A ﬁrm sells 13,000 units a year. The carrying cost per unit per year is $0.84. As a policy, orders are placed at 400 units each. The ﬁxed cost per order is $64. What is the economic order quantity?

Question

Quizplus · Accepted Answer

The formula for Economic Order Quantity (EOQ) is:

EOQ = √((2DS)/(H))

where: 
D = annual demand = 13,000 units
S = ordering cost = $64
H = carrying cost per unit per year = $0.84

Substituting the values in the formula, we get:

EOQ = √((2*13,000*64)/0.84) 
EOQ = √1,803,809.52 
EOQ = 1,343.86

Since orders have to be placed in multiples of 400 units, we need to round up the EOQ to the nearest multiple of 400 units:

EOQ = 1,400 units (rounded up to nearest multiple of 400)

Therefore, the best choice is C.

A ﬁRm Sells 13,000 Units a Year