Question

Petromax Enterprises uses a continuous review inventory control system for one of its SKUs. The following information is available on the item. The firm operates 52 weeks in a year. Refer to the standard normal table for z-values.

> Demand = 78,000 units/year
> Ordering cost = $38.00/order
> Holding cost = $3.00/unit/year
> Average lead time = 9 weeks
> Standard deviation of weekly demand = 120 units

The economic order quantity for this item is____units. (Enter your response rounded to the nearest whole number.)

Answer 1

The economic order quantity is 2,348 units.

Step-by-step explanation:

The economic order quantity (EOQ) is a formula used to determine the optimal quantity to order in order to minimize inventory costs. The formula for EOQ is:

EOQ = √ (2 * demand * ordering cost / holding cost)

Using the given information:

• Demand = 78,000 units/year
• Ordering cost = $38.00/order
• Holding cost = $3.00/unit/year

We can calculate the EOQ as follows:

EOQ = √ (2 * 78,000 * 38 / 3) = 2,348 units (rounded to the nearest whole number).