An electronics store estimates that it can sell 2,000 memory cards each year.Each card costs the store $7.00; holding costs equal 20 percent of unit costs and order costs are $10 per order.The economic order quantity is ________.

Question

Quizplus · Accepted Answer

Using the economic order quantity formula:
EOQ = sqrt((2DS)/H)

Where:
D = demand per year = 2,000
S = order cost = $10
H = holding cost as a percentage of unit cost = 20% of $7 = $1.40

EOQ = sqrt((2 x 2,000 x 10)/1.40) = 169.17

Rounding up, the economic order quantity is 169 cards. This minimizes the total annual inventory costs of ordering and holding the memory cards. Therefore, the best choice is D) 169 cards.

An Electronics Store Estimates That It Can Sell 2,000 Memory