Question

laughton lavender's law office has traditionally ordered ink refills 60 units at a time. the firm estimates that holding cost is 40% of the $10 unit cost and that annual demand is about 240 units per year. the assumptions of the basic eoq model are thought to apply. for what value of ordering cost would its action of ordering 60 units at a time be optimal? question 5 options: $30 $100 $20 $40

Answer 1

Using the EOQ formula and given data, the value of the ordering cost for Laughton Lavender's law office to optimally order 60 units at a time would be $30.

Step-by-step explanation:

To find the value of ordering cost that would make ordering 60 units at a time optimal for Laughton Lavender's law office, we need to use the Economic Order Quantity (EOQ) formula:

EOQ = √((2DS) / H), where D is the demand rate, S is the ordering cost, and H is the holding cost per unit per year. From the question, we know that D = 240 units/year, H = 40% of the $10 unit cost which is $4 per unit per year, and EOQ is given as 60 units. By substituting these values into the EOQ formula, we can solve for the ordering cost S.

60 = √((2 * 240 * S) / 4), which simplifies to 3600 = (480S) / 4. Multiplying both sides by 4 and then dividing by 480 gives us S = $30.

Therefore, if Laughton Lavender's law office's ordering cost were $30, ordering 60 units at a time would be the optimal strategy.