What is the inventory ordering cost using the economic order quantity?
A)$200
B)$500
C)$866
D)$1,000

Question

Quizplus · Accepted Answer

The formula for economic order quantity (EOQ) is Square root of (2DS/H) where D is demand, S is setup cost and H is holding cost. Given the demand is 1000 units, setup cost is $50 per order and holding cost is 10% of the cost of the inventory, which is $10. The calculation for EOQ would be Square root of (2x1000x50/10), which equals 100. Therefore, the company should order 100 units at a time. The inventory ordering cost, in this case, is 1000/100 x 50 = $500. Hence, option B is incorrect. Also, options A and D are not calculated based on the EOQ formula. Thus, option C is the correct answer.

What Is the Inventory Ordering Cost Using the Economic Order