Exhibit 23.3
Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20 percent of the inventory value, at cost.
-Refer to Exhibit 23.3.What is the firm's EOQ?

Question

Quizplus · Accepted Answer

The EOQ (Economic Order Quantity) formula is √((2DS)/H), where D is the demand (1,440,000 gallons), S is the ordering cost ($100), and H is the carrying cost per unit (20% of $2, which is $0.40). Plugging in these values gives EOQ = √((2*1,440,000*100)/0.40) = 26,833.

Exhibit 23.3 Assume That Palmer Executive Pens Uses 1,440,000 Gallons of Ink