Driveline Sprockets expects total sales of $20,000.The price per unit is $5.The firm estimates an ordering cost of $9.00 per order,with an inventory carrying cost of $1.20 per unit.What is the optimum order size?

Question

Quizplus · Accepted Answer

Using the economic order quantity (EOQ) formula:

EOQ = sqrt((2DS)/H)

where:
D = total sales = $20,000
S = cost per unit = $5
H = inventory carrying cost per unit = $1.20
and square root of 2DS/H = square root of (2*$20,000*$5/$1.20)

EOQ = 244.9 or approximately 245 units

Therefore, the optimum order size is 245 units.

Driveline Sprockets Expects Total Sales of $20,000