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17 June, 06:01

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?

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  1. 17 June, 06:15
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    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
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