Fashion ClothiersAssume that Fashion Clothiers Inc. uses 1,440,000 metres of material each year. Further, assume that Fashion can order the material at a cost of $2 per metre, plus fixed ordering costs of $100 per order. The firm's carrying cost is 20% of the inventory value, at cost.
-Refer to Scenario: Fashion Clothiers.What is the firm's EOQ?

Question

Quizplus · Accepted Answer

Using the EOQ formula:

EOQ = √(2DS/H)

where: 
D = Annual demand = 1,440,000 metres 
S = Cost per order = $100 
H = Carrying cost = 20% of $2/metre = $0.40/metre

EOQ = √(2 x 1,440,000 x 100 / 0.40) 
EOQ = √(3,600,000) 
EOQ = 1,897.37 (rounded up to the nearest metre)

Therefore, the EOQ for Fashion Clothiers is 1,898 metres.

Among the choices, the best option is B, which is closest to the calculated EOQ value.

Fashion ClothiersAssume That Fashion Clothiers Inc