For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model is 200 units, and the total annual inventory (carrying and setup) cost is $400. What is the inventory carrying cost per unit per year for this item?
A) $1.00
B) $2.00
C) $3.00
D) $150.00
E) not enough data to determine

Question

Quizplus · Accepted Answer

The total annual inventory cost is the sum of carrying and setup costs. With EOQ, carrying cost = setup cost. Therefore, carrying cost = $400/2 = $200. Since EOQ is 200 units, carrying cost per unit = $200/200 = $1.00. However, the correct calculation should be $200/200 = $2.00 per unit per year.

For a Certain Item, the Cost-Minimizing Order Quantity Obtained with the Basic