Question

Northwestern Bells stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 38,948 units. Northwestern estimates its annual holding cost for this item to be ​$25 per unit per year. The cost to place and process an order from the supplier is ​$4.26. The company operates 300 days per​ year, and the lead time to receive an order from the supplier is 2 working days. What is the economic order quantity?

Answer 1

115 units

Step-by-step explanation:

The computation of the economic order quantity is shown below:

`= \sqrt{\frac{2* \text{Annual demand}* \text{Ordering cost}}{\text{Carrying cost}}}`

where,

Annual demand is 38,948 units

Ordering cost is $4.26 per order

And, the carrying cost or holding cost is $25 per unit per year

Now placing these values to the above formula

So,

`= \sqrt{\frac{2* \text{38,948}* \text{\$4.26}}{\text{\$25}}}`

= 115 units

We simply applied the above formula so that the economic order quantity could come