Final answer:
The EOQ for Honda Ltd's bicycle tires, assuming an annual demand for 10,800 tires, an ordering cost of KSH 500, and a holding cost rate of 15%, is approximately 849 tires. However, the provided multiple-choice answers do not include this result, which indicates that either the options may be incorrect or additional context from the question is needed.
Step-by-step explanation:
The Economic Order Quantity (EOQ) is a formula used to determine the optimal order size that a company should purchase to minimize its inventory costs such as holding costs, shortage costs, and order costs. To calculate the EOQ for Honda Ltd, which produces bicycles, we need to use the following formula: EOQ = √((2 * Demand * Order cost) / Holding cost). Given that Honda produces 450 bicycles a month, the annual demand is 450 * 12 = 5400 tires (as each bicycle requires two tires, this demand needs to be doubled, resulting in 10,800 tires per year). With an order cost of KSH 500 and a holding cost per tire of 15% of KSH 200 (which equals KSH 30), the EOQ calculation would be: EOQ = √((2 * 10,800 * 500) / 30), which simplifies to EOQ = √(21,600,000 / 30), and further simplifies to EOQ = √720,000. The square root of 720,000 is approximately 848.53. Since EOQ must be a whole number and we can't order a fraction of a tire, we round this to the nearest whole number, which would be 849 tires. However, having no option that matches, it seems there may be an issue with the provided options or additional context needed from the question.