Use the information below to answer the following question(s).Office Supply House purchases 4,160 reams of paper per year, ordered in lots of 80 reams per week at $150 per ream.The vendor covers all shipping costs.Office Supply House is not required to inspect the shipment upon entry.Office Supply House earns 20% on its cash investments.The purchase order lead time is two weeks.The following cost data are available:

-How many deliveries will be required at the economic order quantity level?
A)18 deliveries
B)37 deliveries
C)42 deliveries
D)52 deliveries
E)20 deliveries

Question

Use the information below to answer the following question(s).Office Supply House purchases 4,160 reams of paper per year, ordered in lots of 80 reams per week at $150 per ream.The vendor covers all shipping costs.Office Supply House is not required to inspect the shipment upon entry.Office Supply House earns 20% on its cash investments.The purchase order lead time is two weeks.The following cost data are available:
 
-How many deliveries will be required at the economic order quantity level?
A)18 deliveries 
B)37 deliveries 
C)42 deliveries 
D)52 deliveries 
E)20 deliveries

Quizplus · Accepted Answer

Using the economic order quantity formula:
EOQ = sqrt((2DS)/H)
where D = annual demand (4160 reams), S = ordering cost ($150), and H = holding cost percentage (20% of cost per ream = 0.20*$150 = $30)
EOQ = sqrt((2*4160*150)/30) = 320
So, the economic order quantity is 320 reams.
Dividing the annual demand by the EOQ gives the number of deliveries:
4160/320 = 13
Since the order size is 80 reams, the number of deliveries will have to be rounded up to the nearest multiple of 80. 
13*80 = 1040 reams which is less than the annual demand of 4160 reams.
So, delivering 13 lots of 80 reams each will meet the demand, which equals 13*80 = 1040 reams.
This means 13 deliveries will be required.
Therefore, the best choice is B (37 deliveries) as this is the closest to the required 13 deliveries.

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