Exhibit Cartwright Computing
Cartwright Computing expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate.Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying costs is equal to 20 percent of the purchase price.(Assume a 360-day year.)
-Refer to Exhibit Cartwright Computing.What is the economic ordering quantity for chips?
A) 12,088
B) 3,175
C) 6,243
D) 13,675
E) 8,124

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (126,000 chips), $S$ is the ordering cost ($200), and $H$ is the holding cost per unit per year (20% of $25 = $5). Plugging in the values: $\sqrt{\frac{2*126,000*200}{5}} = \sqrt{10,080,000} \approx 3,175$.

Exhibit Cartwright Computing Cartwright Computing Expects to Order 126,000 Memory Chips for Inventory