2L1S Company orders 250 units at a time and places 15 orders per year. Total ordering cost is $1,100, and total carrying cost is $1,750. Which statement best describes the economic order quantity?
A) The economic order quantity (EOQ) is 15.
B) The economic order quantity (EOQ) is 250.
C) The economic order quantity (EOQ) is less than 250.
D) The economic order quantity (EOQ) is more than 250.

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) formula is:
√((2DS)/H)
where:
D = annual demand or units sold
S = ordering cost per order
H = holding or carrying cost per unit per year

Plugging in the given values, we get:
√((2x250x15)/1750) ≈ 16

Since the optimal EOQ is less than the ordering quantity (250), the best choice is C. This means that 2L1S company should order fewer units each time, but more frequently, in order to minimize their total inventory cost.

2L1S Company Orders 250 Units at a Time and Places