The manager of the Quick Stop Corner Convenience Store (which never closes)sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (each case of Stein beer contains four six-packs). Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer.
What is the economic order quantity for Stein beer?
A)8 cases
B)11 cases
C)14 cases
D)20 cases
E)32 cases

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is given by $\sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand, $S$ is the ordering cost per order, and $H$ is the holding cost per unit per year. Given:- Daily demand = 4 cases- Annual demand ($D$) = 4 cases/day * 365 days/year = 1460 cases/year- Order cost ($S$) = $8.00- Cost per case = 4 six-packs * $0.80 = $3.20- Daily holding cost = 5% of $3.20 = $0.16- Annual holding cost ($H$) = $0.16/day * 365 days/year = $58.40/case/yearPlugging these values into the EOQ formula:$$EOQ = \sqrt{\frac{2*1460*8}{58.4}}$$$$EOQ = \sqrt{\frac{23360}{58.4}}$$$$EOQ = \sqrt{400} = 20$$Therefore, the economic order quantity for Stein beer is 20 cases.

The Manager of the Quick Stop Corner Convenience Store (Which