If annual demand is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order-quantity model?
A) 576
B) 240
C) 120.4
D) 60.56
E) 56.03

Question

Quizplus · Accepted Answer

Using the fixed-order-quantity model, we can determine the optimal order quantity by using the formula:

Q = √(2DS/H)

Where:
Q = Order quantity
D = Annual demand
S = Ordering cost per order
H = Holding cost per unit per year

Plugging in the given values, we get:

Q = √(2 x 12,000 x 6/2.5) = 240

Therefore, the optimal order quantity is 240 units.

If Annual Demand Is 12,000 Units, the Ordering Cost Is