A firm estimates that its annual carrying cost for material X is $.30 per lb.If the firm requires 50,000 lbs.per year,and ordering costs are $100 per order,what is the EOQ (rounded to the nearest pound)?
A)5,774 lbs.
B)4,082 lbs.
C)1,732 lbs.
D)1,225 lbs.

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (50,000 lbs/year), $S$ is the ordering cost ($100/order), and $H$ is the holding cost per unit per period ($.30/lb/year). Plugging in the values: $\sqrt{\frac{2*50000*100}{0.30}} \approx 5773.50$, which rounds to 5,774 lbs.

A Firm Estimates That Its Annual Carrying Cost for Material