Massa Machine Tool expects total sales of $60,000. The price per unit is $10. The firm estimates an ordering cost of $25 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

The optimal order size is 654.

Explanation:

As we know that: EOQ = Squareroot (2DS/H)

where:

S = ordering cost = $25 per order

H = Holding cost per unit = 0.70 per unit

D = Annual demand, sales = 60000/10 = 6000 units

Solution:

= Squareroot (2 * 6000 * 25) / 0.70

= Squareroot (300000/0.70)

= Squareroot (428571)

EOQ = 654