A firm has order-processing costs of $8, an annual demand of 4,000 units, holding costs equal to 20 percent of the average inventory on hand, and wholesale unit costs of $2. What is its economic order quantity?
A) 10 units
B) 200 units
C) 400 units
D) 1,000 units

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) is calculated using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Holding Cost). Here, Demand = 4000 units, Order Cost = $8, Holding Cost = 20% of $2 = $0.40. Plugging these values into the formula gives EOQ = sqrt((2 * 4000 * 8) / 0.40) = 400 units.

A Firm Has Order-Processing Costs of $8, an Annual Demand