Question

If the cost of an item is $500, the carrying cost rate is 20%, the order cost is $75, annual demand is for 1,000 units, calculate the economic order quantity. Round off to the next highest unit.

Answer 1

To calculate the Economic Order Quantity (EOQ), use the formula: EOQ = sqrt[(2 * annual demand * order cost) / carrying cost rate]. Plugging in the given values, the EOQ is 867 units.

Step-by-step explanation:

To calculate the Economic Order Quantity (EOQ), we can use the formula:

EOQ = sqrt[(2 * annual demand * order cost) / carrying cost rate]

In this case, the annual demand is 1,000 units, the order cost is $75, and the carrying cost rate is 20%, which can be written as 0.20. Plugging these values into the formula, we get:

EOQ = sqrt[(2 * 1,000 * $75) / 0.20] = sqrt[(150,000) / 0.20] = sqrt[750,000] = 866.03

Rounding to the next highest unit, the economic order quantity is 867 units.