Question

Power Electronics company supplies micro computer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 2500 units and this is constant throughout the year. Carrying costs are estimated to be P10 per unit per year and the ordering cost is P200 per order.

Answer 1

The quanitity per order that minimizes the cost is 137.84 units.

Step-by-step explanation:

The EOQ or economic order quantity is the quantity that should be ordered per order to minimize the cost of ordering and holding inventory. To calculate the number of units that should be ordered per order to minimize cost, we need to calculate the EOQ.

EOQ = √(2*D*O)/H

Where,

D is the annual demand in units

O is the ordering cost per order

H is the holding/carrying cost per unit per annum

Thus,

EOQ = √(2 * 250 * 19)/0.5

EOQ = 137.84