Question

If annual demand is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, what is the optimal order quantity?

Answer 1

240

Step-by-step explanation:

Data provided in the question:

Annual demand, D = 12,000 units

Ordering cost, C = $6 per order

Holding cost = $2.50 per unit per year

Now,

Optimal order quantity =
`\sqrt{\frac{2* \text{Annual demand}*\text{Ordering cost}}{\text {Holding cost}}`

on substituting the respective values, we get

or

Optimal order quantity =
`\sqrt{\frac{2* \text{12,000}*\text{6}}{\text {2.50}}`

or

Optimal order quantity = √57,600

or

Optimal order quantity = 240