The annual demand for a product has been projected at 2,000 units.This demand is assumed to be constant throughout the year.The ordering cost is $20 per order,and the holding cost is 20 percent of the purchase cost.Currently,the purchase cost is $40 per unit.There are 250 working days per year.Whenever an order is placed,it is known that the entire order will arrive on a truck in 6 days.How many units should the company order each time an order is placed if the company wishes to minimize total inventory cost?
A)100
B)200
C)250
D)500
E)None of the above

Question

Quizplus · Accepted Answer

The EOQ formula is: EOQ = sqrt((2*D*O)/H)where:D = annual demandO = ordering costH = holding costIn this case, D = 2,000 units, O = $20, and H = 20% of $40 = $8.Plugging these values into the formula, we get:EOQ = sqrt((2*2,000*$20)/$8) = 100 unitsTherefore, the company should order 100 units each time an order is placed.

The Annual Demand for a Product Has Been Projected at 2,000