Use the information below to answer the following questions
Aqua Ltd has forecast the yearly demand for its product as 5,000 units. 100 units of material must be used to produce the product. The cost of placing a single order for raw materials is $20, and the cost of holding one unit of material is $0.40 a year.
-Chocolate Ltd uses 18,000 litres of chocolate syrup each year. The cost of holding its chocolate syrup inventory is $0.50 per litre per year. The cost of ordering the syrup is $150 per delivery. The firm uses chocolate syrup at a constant rate throughout the year. The economic order quantity for chocolate syrup is:

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand, $S$ is the ordering cost, and $H$ is the holding cost per unit per period. For Chocolate Ltd, $D = 18,000$ litres, $S = $150$, and $H = $0.50$. Plugging these values into the EOQ formula gives $\sqrt{\frac{2*18000*150}{0.5}} = \sqrt{5,400,000} \approx 3,286$ litres.

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