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Rajesh Indian Market (RIM) is open 12 months out of the year. At RIM, the demand for rice is very consistent 200 pounds per month. RIM orders the rice from a distributor in India at an ordering cost of $50 per order. Rice costs $5 per pound, and annual carrying charge is 15%.

The EOQ is?
a. 566 pounds
b. 164 pounds
c. 163 pounds
d. 26667 pounds

User Stuti
by
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1 Answer

3 votes

Answer:

A. 566 pounds

Step-by-step explanation:

Given: Demand for rice is very consistent= 200 pounds per month.

Cost of rice per order= $50 per order.

Rice cost= $5 per pound.

Carrying charge= 15%

EOQ: Economic order quantity (EOQ) is the number of units that company should include in their inventory with each order to reduce cost of inventory.

Now, calculating EOQ.

Formula; EOQ=
\sqrt{(2DP)/(C) }

D= Demand in units for specified period.

P= relevant ordering costs per order.

C= Relevant carrying cost of one unit in stock for the time period used for D.

EOQ=
\sqrt{(2* (50)(200* 12))/(5* 15\%) }

⇒ EOQ=
\sqrt{(2(50)(2400))/(5* (0.15)) }

Opening parenthesis

⇒ EOQ=
\sqrt{(240000)/(0.75) }

⇒ EOQ=
√(320000)

∴ EOQ=
565.68\ pound \approx 566\ pounds

Hence, Economic order quantity is 566 pounds.

User Vikram Ray
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