Question

What is the optimal order quantity for Littlefield Lab's operation, given the following parameters?

Annual demand: 20 units per day
Operating days per year: 365 days
Annual holding cost rate: 5%
Order cost: $100
Cost of a raw material unit: $500
A) 242
B) 25
C) 13

Answer 1

The optimal order quantity for Littlefield Lab's operation is 242 units.

Step-by-step explanation:

The optimal order quantity for Littlefield Lab's operation can be determined using the Economic Order Quantity (EOQ) formula. EOQ = √((2 * Annual demand * Order cost) / Holding cost rate).

In this case, the annual demand is 20 units per day * 365 days, the order cost is $100, and the holding cost rate is 5% of the cost of a raw material unit ($500). Plugging these values into the formula, we get EOQ = √((2 * 20 * 365 * $100) / (($500 * 5%) / 100)). Calculating this, the optimal order quantity is 242 units.