Question

A product with an annual demand of 1000 units has Co = $24.50 and Cₕ = $5. The demand exhibits some variability such that the lead-time demand follows a normal probability distribution with μ = 24 and σ = 4,

Note: Use Appendix B to identify the areas for the standard normal distribution.
What is the recommended order quantity? Round your answer to the nearest whole number.
Q * =

Answer 1

The recommended order quantity is 70 units

Step-by-step explanation:

In order to calculate the recommended order quantity, we need to consider the economic order quantity (EOQ) formula which calculates the optimal quantity to order based on demand and holding costs. The EOQ formula is:

EOQ = sqrt((2 * Co * D) / Ch)

where Co is the cost per order, D is the annual demand, and Ch is the holding cost per unit per year.

Plugging in the given values, we have:

EOQ = sqrt((2 * $24.50 * 1000) / $5) ≈ 70.14

Rounding the order quantity to the nearest whole number, the recommended order quantity is 70 units.