A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order:
A) all 4000 units at one time.
B) 200 units per order.
C) every 20 days.
D) 10 times per year.
E) none of these

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is used to find the cost-minimizing solution for ordering inventory. The formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is the demand (4000 units/year), $S$ is the ordering cost ($20), and $H$ is the holding cost per unit per year ($4). Plugging in the values, we get $\sqrt{\frac{2*4000*20}{4}} = \sqrt{40000} = 200$. Therefore, ordering 200 units per order minimizes the total cost.

A Product Has a Demand of 4000 Units Per Year