Table 1
Jackson Enterprises uses a fixed order quantity inventory control system. The firm operates 50 weeks per year and has the following characteristics for an item:
Demand $ =20,000 $ units/year
Ordering cost $ =\$ 45 / $ order
Inventory-carrying cost as a percent of item value $ =25 \% $
Item (Unit) value $ =\$ 20 $
Lead time $ =5 $ weeks
Standard deviation in weekly demand $ =125 $ units
-Using the information in Table 1, calculate the economic order quantity (EOQ) for this item?
A) Less than or equal to 500 units
B) Greater than 500 units but less than or equal to 1,000 units
C) Greater than 1,000 units but less than or equal to 1,500 units
D) Greater than 1,500 units

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand, $S$ is the ordering cost per order, and $H$ is the annual holding cost per unit. Given $D = 20,000$ units/year, $S = \$45$, and $H = 25\%$ of the item value (\$20), the holding cost per unit per year is $0.25 \times \$20 = \$5$. Plugging these values into the EOQ formula gives $\sqrt{\frac{2 \times 20,000 \times 45}{5}} = \sqrt{360,000} \approx 600$. Therefore, the EOQ is greater than 500 units but less than or equal to 1,000 units.

Table 1 Jackson Enterprises Uses a Fixed Order Quantity Inventory =20,000 =20,000 =20,000

Table 1
Jackson Enterprises Uses a Fixed Order Quantity Inventory $=20,000$