Mountain Snow Sports,Inc.is trying to determine the optimal order quantity for snow boards for the next twelve months.Annual sales are expected to be 1,000,000 units at a retail price of $400 each.The cost of carrying snow boards is $80 per year.Studies show that it costs Mountain Snow $250 to prepare and receive an order.What is the EOQ?

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (1,000,000 units), $S$ is the setup or ordering cost ($250), and $H$ is the holding or carrying cost per unit per year ($80). Plugging in the values: $\sqrt{\frac{2*1,000,000*250}{80}} = \sqrt{\frac{500,000,000}{80}} = \sqrt{6,250,000} = 2,500$.