Lagoon Enterprises uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company's annual ordering and holding costs total:
A) $2,000.
B) $3,000.
C) $21,000.
D) $41,000.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The total annual ordering cost is (10,000 units / 500 units per order) * $50 = $1,000. The total annual holding cost is (500 units / 2) * $4 = $1,000. Therefore, the total annual ordering and holding costs are $1,000 + $1,000 = $2,000.

Lagoon Enterprises Uses an Economic Order Quantity Model and Has