Your hotel sells 4,500 cases of beer per year. The cost of ordering and receiving a shipment of beer is $50. The cost of holding a case of beer in stock for a year is $5. Use the EOQ model to determine the most economic order quantity for beer.

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (4500 cases/year), $S$ is the ordering cost ($50), and $H$ is the holding cost per unit per year ($5). Plugging in the values, we get $\sqrt{\frac{2*4500*50}{5}} = \sqrt{90000} = 300$. Therefore, the most economic order quantity is 300 cases.

Your Hotel Sells 4,500 Cases of Beer Per Year