Scenario 9.5
Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Dr. Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cost = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
-Use the information in Scenario 9.5. If Tom orders such that his annual holding cost is twice what his annual ordering cost is, how many units at a time is he ordering?
A) less than or equal to 100 units
B) greater than 100 but less than or equal to 105 units
C) greater than 105 but less than or equal to 110 units
D) greater than 110 units

Question

Quizplus · Accepted Answer

Given that the annual holding cost is twice the annual ordering cost, we can set up the equation based on the Economic Order Quantity (EOQ) model. The EOQ formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand, $S$ is the order cost, and $H$ is the holding cost per unit per year. Given $D = 25 \times 52 = 1300$ units/year, $S = $3$, and $H = $1.50$, we can calculate the EOQ as $\sqrt{\frac{2 \times 1300 \times 3}{1.50}}$, which gives an EOQ that falls into the range greater than 100 but less than or equal to 105 units.

Scenario 9.5 Tom Bergman, Owner and Operator of the Earplug Superstore, Is