Question

Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,700 units. His cost to carry one unit is $110 per year per unit, and he has estimated that each order costs $26 to place. Using the EOQ model, how many should Ray order each time

Answer 1

Ray should per time = 28.35 units

Step-by-step explanation:

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 the formulae below

EOQ = √ (2× Co× D)/Ch

Co- Ordering cost, Ch- Carrying cost - D- Annual demand

Co = 26, Ch- 110, D= 1,700

EOQ = √(2×26×1,700)/110=28.34

EOQ = 28.35 units

Ray should per time = 28.35 units