IceCrem uses 1,600 pounds of sugar a year. If the ordering cost is $2 per order and the holding cost is $4 per pound, then the optimal quantity to order sugar is _____.
A) 10 pounds
B) 20 pounds
C) 30 pounds
D) 40 pounds

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is used to determine the optimal order quantity that minimizes total inventory costs. The formula is: EOQ = sqrt((2DS)/H), where D is the demand (1,600 pounds), S is the ordering cost ($2), and H is the holding cost ($4). Plugging in the values: EOQ = sqrt((2*1600*2)/4) = sqrt(1600) = 40 pounds.

IceCrem Uses 1,600 Pounds of Sugar a Year