A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate. The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00. If the restaurant orders the economic order quantity then the average inventory for napkins is
A) 62,500 boxes.
B) 31,250 boxes.
C) 5,000 boxes.
D) 2,500 boxes.

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is used to minimize the total inventory costs. The average inventory is EOQ/2. First, calculate EOQ using the formula: EOQ = sqrt((2 * Demand * Order Cost) / Carrying Cost). Plugging in the values: EOQ = sqrt((2 * 62,500 * 200) / 1) = 10,000. The average inventory is 10,000 / 2 = 5,000 boxes.

A Restaurant Currently Uses 62,500 Boxes of Napkins Each Year