Question

M. Cotteleer Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into refrigerators and other home appliances. One of the components has an annual demand of 250 units, and this is constant throughout the year. Carrying cost is estimated to be $1 per unit per year, and the ordering (setup) cost is $20 per order.

To minimize cost, how many units should be ordered each time an order is placed?

Answer 1

Order size per time = 100 units

Step-by-step explanation:

To minimize cost, M Cotteleer Electronics Supplies should adopt the EOQ.

The Economic Order Quantity (EOQ) is the order size that minimizes the balance of ordering cost and holding cost. At the EOQ, the carrying cost is equal to the holding cost.

It is computed using he formula below

EOQ = √ (2× Co× D)/Ch

C0- ordering cost per order- 20, Ch-carrying cost per per unit per annum- $1, D- annual demand 250 units

EOQ= √ (2× 20× 250)/1

=100 units

To minimise cost, the M Cotteleer Electronics Supplies should order 100 units per time