Last year Spiller Beamish plc incurred total costs of £250 in placing 10 orders for a product.This year the management accountant would like to use the EOQ model to see if the product should be ordered more, or less, frequently.Holding costs for the product are £3 per unit, and demand for the product for the period is estimated at 7000 units.What is the Economic Order Quantity (to the nearest whole unit), assuming that the cost of placing one order is unchanged from the previous year?

Question

Quizplus · Accepted Answer

The EOQ formula is √((2DS)/H), where D is demand (7000 units), S is the cost per order (£25), and H is the holding cost per unit (£3). Plugging in the values: EOQ = √((2*7000*25)/3) = √(116666.67) ≈ 342 units.

Last Year Spiller Beamish Plc Incurred Total Costs of £250