Question

A mail-order house uses 18,000 boxes a year. Carrying costs are $.60 per box per year, and ordering costs are $96. - What is the optimal order quantity?

Answer 1

The optimal order quantity for the mail-order house that uses 18,000 boxes a year, with carrying costs of $0.60 per box per year and ordering costs of $96, is approximately 2400 boxes, calculated using the Economic Order Quantity formula.

Step-by-step explanation:

To determine the optimal order quantity for a mail-order house using 18,000 boxes a year, with carrying costs at $0.60 per box per year and ordering costs at $96, we use the Economic Order Quantity (EOQ) formula. The EOQ model is designed to minimize the total cost associated with ordering and carrying inventory. The EOQ formula is given by:

EOQ = √((2DS)/H)

Where:

• D = Demand in units (the number of boxes needed annually)
• S = Ordering cost per order
• H = Holding or carrying cost per unit per year

Substituting the given values:

EOQ = √((2 * 18,000 * $96)/$0.60)

EOQ = √((3,456,000)/$0.60)

EOQ = √(5,760,000)

EOQ ≈ 2400 boxes

Therefore, the optimal order quantity is approximately 2400 boxes.