Scenario 9.7
You are the operations manager of a firm that uses the continuous-review inventory control system.Suppose the firm operates 52 weeks a year,365 days,and has the following characteristics for its primary item:
Demand = 25,000 units/year
Ordering cost = $30/order
Holding cost = $8/unit/year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units
A normal distribution table is appended to this exam.
-Use the information in Scenario 9.7.What is the economic order quantity for this item?
A)less than or equal to 400 units
B)greater than 400 but less than or equal to 450 units
C)greater than 450 but less than or equal to 500 units
D)greater than 500 units

Question

Quizplus · Accepted Answer

The economic order quantity (EOQ) is the optimal quantity to order at a time to minimize the total inventory costs. The EOQ is given by the formula:```EOQ = sqrt((2*D*O)/H)```where:* D is the annual demand* O is the ordering cost* H is the holding costIn this case, the annual demand is 25,000 units, the ordering cost is $30, and the holding cost is $8. Plugging these values into the formula, we get:```EOQ = sqrt((2*25,000*30)/8) = 433.01```Therefore, the economic order quantity is 433 units. The closest answer choice is B) greater than 400 but less than or equal to 450 units.

Scenario 9.7 You Are the Operations Manager of a Firm That Uses