Question

If D​ = 7,500 per​ month, S​ = ​$43 per​ order, and H​ = ​$1.50 per unit per​ month, ​a) What is the economic order​ quantity? (round your response to the nearest whole​ number). ​b) How does your answer change if the holding cost​ doubles? ​(round your response to the nearest whole​ number). ​c) What if the holding cost drops in​ half? ​(round your response to the nearest whole​ number).

Answer 1

a) 656 units per order

b) 464 units per order

c) 927 units per order

Step-by-step explanation:

Given;

Demand, D = 7500 per month

S = $ 43 per order

Holding cost H = $ 1.5 per unit per month

a) The economic order quantity (EOQ) is calculated as:

EOQ = √(2 × D × S / H)

on substituting the values, we get

EOQ = √(2 × 7500 × 43 / 1.50)

or

EOQ = 655.74 ≈ 656 units per order

b) Now,

for double holding cost i.e H = 2 × $ 1.5 = $ 3 per unit per month

we have,

EOQ = √(2 × 7500 × 43 / 3)

or

EOQ = 463.68 ≈ 464 units per order

hence, answer decreases i.e the economic order quantity decreases.

c) Now,

the holding cost decreases to half i.e H = 0.5 × $ 1.5 = $ 0.75

thus,

EOQ = √(2 × 7500 × 43 / 0.75)

or

EOQ = 927.36 ≈ 927 units per order

hence, the economic order quantity increases.