Question

What is your economic order quantity if your annual demand is 100 units, the order placement cost is $25, and the holding cost per unit per year is $50?

a) 10 units
b) 50 units
c) 100 units
d) 200 units
e) none of the above

Answer 1

The Economic Order Quantity (EOQ) for an annual demand of 100 units, order placement cost of $25, and holding cost of $50 per unit per year is approximately 70.71 units. Since this exact value is not provided in the choices, the correct answer is 'none of the above'.

Step-by-step explanation:

The Economic Order Quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. The formula to calculate EOQ is given by √(2DS/H), where D is the annual demand, S is the order placement cost per order, and H is the holding cost per unit per year.

Given that the annual demand (D) is 100 units, the order placement cost (S) is $25, and the holding cost per unit per year (H) is $50, the EOQ can be calculated as follows:

EOQ = √((2 * 100 units * $25) / $50) = √((2 * 100 * 25)/50) = √(5000) = 70.71 units

Since EOQ must be a whole number, it will be rounded to the nearest whole unit. The closest answer provided in the options is none of the above, as 70.71 units is not listed among the options.