Question

Massa Machine Tool expects total sales of $60,000. The price per unit is $10. The firm estimates an ordering cost of $25 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

Answer 1

The optimum order size is 6000 units.

Step-by-step explanation:

To determine the optimum order size, we need to consider the total cost and the quantity of units. The formula for total cost is (ordering cost + inventory cost), and the formula for quantity of units is (total sales / price per unit).

In this case, the ordering cost is given as $25 per order, and the inventory cost is $0.70 per unit. The total sales are $60,000, and the price per unit is $10.

Using the formulas, we can calculate the optimum order size:

1. Calculate the quantity of units: 60000 / 10 = 6000 units
2. Calculate the ordering cost: 25
3. Calculate the inventory cost: 0.7
4. Calculate the total cost: (25 + 0.7) * 6000 = 15300

Therefore, the optimum order size is 6000 units.

Answer 2

The optimal order size is 654.

Step-by-step explanation:

As we know that: EOQ = Squareroot (2DS/H)

where :

S= ordering cost = $25 per order

H = Holding cost per unit = 0.70 per unit

D= Annual demand,sales = 60000/10 = 6000 units

Solution:

= Squareroot ( 2 * 6000 * 25 ) / 0.70

= Squareroot (300000/0.70)

= Squareroot (428571)

EOQ = 654