The owner of an appliance store expects to sell 700 toasters this year. Each toaster costs her $8 dollars to purchase, and each time she orders a shipment of toasters, it costs $34. In addition, it costs $3 a year to store each toaster. Assuming the toasters sell out at a uniform rate and that the owner never allows herself to run out of toasters, how many toasters should be ordered in each shipment to minimize the annual cost? (Round any fractional amounts.)
A) 63
B) 126
C) 22
D) 15

Question

Quizplus · Accepted Answer

The optimal order quantity to minimize costs can be found using the Economic Order Quantity (EOQ) formula: $EOQ = \sqrt{\frac{2DS}{H}}$, where $D$ is the demand (700 toasters), $S$ is the ordering cost ($34), and $H$ is the holding cost per unit per year ($3). Plugging in the values, we get $EOQ = \sqrt{\frac{2*700*34}{3}} \approx 126$. Therefore, ordering 126 toasters per shipment minimizes the annual cost.

The Owner of an Appliance Store Expects to Sell 700