Question

A company with an inventory that has a $0.5 per unit carrying cost. The fixed order cost is $96 per order and the firm sells 60,000 units per year. How many orders should be placed based on EOQ?

Round EOQ up to the nearest unit (e.g. 220, no decimals). Round the number of orders to 2 decimals (e.g. 22.05), and the unit is Orders.

Answer 1

Based on the EOQ formula, 17.69 orders should be placed annually by the company to minimize inventory costs with a rounded EOQ of 3,393 units.

Step-by-step explanation:

To determine how many orders should be placed based on the Economic Order Quantity (EOQ) formula, we have to calculate the EOQ first. The EOQ formula is given by:

EOQ = √((2 * Demand * Order Cost) / Holding Cost per unit)

Plugging in the numbers:

EOQ = √((2 * 60,000 units * $96) / $0.5)

EOQ = √((120,000 * $96) / $0.5)

EOQ = √(11,520,000)

EOQ = 3,392.49 units

Since EOQ must be rounded up to the nearest unit, it becomes 3,393 units. To find the number of orders, we take the annual demand and divide it by the EOQ:

Number of Orders = Demand / EOQ

Number of Orders = 60,000 / 3,393

Number of Orders = 17.69

After rounding, we have 17.69 orders. Therefore, based on the EOQ model, 17.69 orders should be placed annually.