Calculate the economic ordering quantity for Nashville Records Inc., given the following information: Sales = 15,000 units per year
Sales price = R10 per unit
Purchase price = R5
Carrying cost = 0.25 times inventory value
Fixed cost per order = R1,000

Question

Quizplus · Accepted Answer

EOQ formula: 
EOQ = √((2DS)/(H))

where, D = demand = 15,000 units per year
S = cost per order = R1,000
H = carrying cost = 0.25 x purchase price = 0.25 x R5 = R1.25

Plugging in the values, we get:
EOQ = √((2x15,000x1,000)/(1.25)) = 4,899 units

Therefore, the best choice is B, which is 4,899 units. This value represents the most cost-effective order quantity that minimizes total inventory costs.

Calculate the Economic Ordering Quantity for Nashville Records Inc