Calculate the economic ordering quantity for Nashville Records Inc. ,given the following information:
Sales= 15,000 units per year
Sales price= $10 per unit
Purchase price= $5
Carrying cost= 0.25 times inventory value
Fixed cost per order= $1,000
A) 3,464 units
B) 4,899 units
C) 346 units
D) 490 units
E) 1,549 units

Question

Quizplus · Accepted Answer

EOQ formula:
EOQ = sqrt[(2DS)/(H)]
Where,
D = Annual demand or sales = 15,000 units
S = Cost of placing one order = $1,000
H = Annual carrying cost per unit = 0.25 * $5 = $1.25

Plugging in the values, we get:
EOQ = sqrt[(2*15,000*1,000)/1.25]
    = sqrt[24,000,000]
    = 4,899.8 units (rounded to nearest whole number)
 
Therefore, the economic ordering quantity is 4,899 units, which is the best choice as it will minimize the total ordering and carrying costs for Nashville Records Inc.

Calculate the Economic Ordering Quantity for Nashville Records Inc