Question

Victor Pimentel uses 1,500 per year of a certain subassembly that has an annual holding cost of 45 per unit. Each order placed costs Victor 150. He operates 300 days per year and has found that an order must be placed with his supplier 6 working days before he can expect to receive that order. Part 2: What is the economic order quantity in units?

Answer 1

The economic order quantity (EOQ) is a formula used to determine the optimal quantity of a product that a business should order. For Victor Pimentel, the EOQ is 100 units.

Step-by-step explanation:

The economic order quantity (EOQ) is a formula used to determine the optimal quantity of a product that a business should order at one time in order to minimize inventory holding costs and ordering costs. The formula for calculating EOQ is:

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

In this case, the demand is 1,500 units per year, the ordering cost is $150 per order, and the holding cost is $45 per unit per year. Plugging these values into the formula:

EOQ = √((2 * 1500 * 150) / 45) = √((450000) / 45) = √10000 = 100 units

Therefore, the economic order quantity for Victor Pimentel is 100 units.