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1 April, 14:25

A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? The answer that is posted is incorrect. The answer should be 110, does anyone have a way to do this problem correctly?

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  1. 1 April, 14:28
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    The approximate economic order quantity is 110 units.

    Explanation:

    A = annual demand = 10,000 units per year

    C = unit cost of pot = $1000

    S = Ordering cost per order = $150

    I = Annual carrying cost (%) = 25% of unit cost

    H = Annual carrying cost ($) = 0.25*C

    = 0.25*$1000

    = $250 per unit per year

    Optimal order quantity is obtain from the EOQ formula.

    Economic Order Quantity (EOQ) is given as follows:

    Q = / sqrt{/frac{2*A*S}{H}}

    Q = / sqrt{/frac{2*10,000*150}{250}}

    Q = / sqrt{/frac{3000000}{250}}

    Q = / sqrt{12000} = 109.545

    Q = 110 units per order

    Therefore, The approximate economic order quantity is 110 units.
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