A company has estimated its economic order quantity for Part A at 2,400 units for the coming year.If ordering costs are $200 and carrying costs are $.50 per unit per year,what is the estimated total annual usage?
A)6,000 units
B)28,800 units
C)7,200 units
D)2,400 units

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, S is the ordering cost, and H is the carrying cost per unit. Given EOQ = 2,400, S = $200, and H = $0.50, we can solve for D (annual usage). Rearranging the formula gives D = (EOQ^2 * H) / (2S). Plugging in the values, D = (2400^2 * 0.5) / (2 * 200) = 7,200 units.

A Company Has Estimated Its Economic Order Quantity for Part