Question

A company produces item Y, and uses the basic EOQ model for managing its inventory. Demand is 200 per month. The ordering cost is $20, and carrying cost is $10 per unit per month Determine the order quantity for product Y 1) 800 0 2120 3) 28.28 4) 14.14

Answer 1

3) 28.28.

Explanation:

In order to find the answer we need to establish the EOQ equation which is:

`EOQ=√(2*s*d/h)` where:

s=the cost of the setup

d=demand rate

h=cost of holding

Because demand is 200/month so d=200,

the ordering cost is $20/month so s=20, and

the carrying cost in $10/month so h=10.

Using the equation we have:

`EOQ=√(2*20*200/10)`

`EOQ=√(800)`

`EOQ=28.28`

So, answer to 'the order quantity for product' is 3) 28.28.