Beta Supply Company has an economic order quantity of 400 units for item A. The annual demand for the product is 10,000 units, and the cost of placing an order is $20. Calculate the carrying cost per unit. (Round answer to two decimal places.)
A)$6.75
B)$2.50
C)$3.10
D)$4.25

Question

Quizplus · Accepted Answer

The carrying cost per unit can be calculated using the formula for the Economic Order Quantity (EOQ): $EOQ = \sqrt{\frac{2DS}{H}}$, where $D$ is the annual demand, $S$ is the cost of placing an order, and $H$ is the annual holding cost per unit. Rearranging the formula to solve for $H$, we get $H = \frac{2DS}{EOQ^2}$. Plugging in the given values: $D = 10,000$, $S = $20$, and $EOQ = 400$, we find $H = \frac{2 * 10,000 * 20}{400^2} = \frac{400,000}{160,000} = 2.5$. Therefore, the carrying cost per unit is $2.50.

Beta Supply Company Has an Economic Order Quantity of 400