The owner of an appliance store expects to sell 600 toasters this year. Each toaster costs her $8 dollars to purchase, and each time she orders a shipment of toasters, it costs $28. In addition, it costs $1 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) 183
B) 9
C) 6
D) 92

Question

Quizplus · Accepted Answer

The optimal order quantity is the economic order quantity (EOQ), which is given by the formula:EOQ = √(2DS/H)where:D = annual demand (600 toasters)S = ordering cost ($28)H = holding cost ($1 per toaster per year)Plugging in the values, we get:EOQ = √(2 * 600 * 28 / 1) = 182.57Rounding up to the nearest whole number, the optimal order quantity is 183 toasters.

The Owner of an Appliance Store Expects to Sell 600