Ontario Corp.Assume that Ontario Corp. has sales of 1,000 units per year. Further, assume that Ontario Corp. can order the material at a cost of $.50 per order, plus fixed ordering costs of $.75 per order. The firm's carrying cost is 3% of the inventory value, at cost.
-Refer to Scenario: Ontario Corp.What is Ontario Corp.'s EOQ?

Question

Quizplus · Accepted Answer

We can use the following formula to calculate EOQ:
EOQ = √(2DS/H)

Where:
D = Annual demand = 1,000 units
S = Fixed ordering cost = $0.75 per order
H = Carrying cost per unit = 3% of the inventory value at cost = 3% x $6.25 (average inventory) = $0.1875 per unit

Substituting these values, we get:
EOQ = √(2 x 1,000 x 0.75 / 0.1875) = √(2 x 5,250) = √10,500 ≈ 316

Therefore, the best choice for Ontario Corp.'s EOQ is C.