Figure 20 - 1
Moriah's Candle Company manufactures candles. The company buys wax in 45Kilogram containers that cost $17 each. The company uses 25,000 containers per year, and usage occurs evenly throughout the year. The average cost to carry a 45-Kilogram container in inventory per year is $3, and the cost to place an order is $9. The company works 250 days per year.
-Refer to Figure 20-1. The economic order quantity (rounded) is

Question

Figure 20 - 1
Moriah's Candle Company manufactures candles. The company buys wax in 45­Kilogram containers that cost $17 each. The company uses 25,000 containers per year, and usage occurs evenly throughout the year. The average cost to carry a 45-Kilogram container in inventory per year is $3, and the cost to place an order is $9. The company works 250 days per year.
-Refer to Figure 20-1. The economic order quantity (rounded) is

Quizplus · Accepted Answer

The formula for economic order quantity (EOQ) is:
EOQ = sqrt((2DS)/H)
where:
D = annual demand (usage) = 25,000 containers
S = ordering cost = $9 per order
H = holding cost per unit per year = $3/45kg = $0.067/kg
(Note: we need to convert holding cost from $/container to $/kg)

Plugging in the values, we get:
EOQ = sqrt((2 x 25,000 x 9)/0.067) = 386.95

Rounding up to the nearest whole number, the EOQ is 387 containers. Therefore, the best choice is D.