Question

Andy sells 360 bottles of vitamin C per week at $30 per bottle. He orders the vitamin bottles from a supplier who charges $24 per bottle and $35 per delivery. Andy's annual holding cost percentage is 40%, and he operates 50 weeks a year. What economic order quantity minimizes the total ordering and holding cost per year? 300 362 256 212

Answer 1

Step-by-step explanation:

To find the Economic Order Quantity (EOQ), we will use the EOQ formula:

EOQ = √(2DS / H)

Where D = annual demand, S = ordering cost, and H = holding cost per unit per year. First, we need to find D (total annual demand), S (per order cost), and H (annual holding cost per unit).

Given Andy's operation runs 50 weeks a year and sells 360 bottles of Vitamin C per week, we can find his annual demand (D):

D = 360 bottles/week × 50 weeks = 18,000 bottles

The ordering cost (S) is given as a fixed $35 per delivery.

To find the annual holding cost per unit (H), note that the holding cost rate is given as 40%:

Cost per bottle = $24

Holding cost per bottle per year (H) = holding cost rate × cost per bottle

H = 0.4 × $24 = $9.6

Now, we can plug these values into the EOQ formula:

EOQ = √(2DS / H) = √(2 × 18,000 × $35 / $9.6) = √(1,260,000 / 9.6) ≈ 362

Thus, the EOQ that minimizes total ordering and holding costs per year is approximately 362 bottles per order. The closest option among the given choices is 362.