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 850 units. His cost to carry one unit is $65 per year per unit, and he has estimated that each order costs $14 to place. Using the EOQ model, how many should Ray order each time

Answer 1

19 units per order

Step-by-step explanation:

the formula to calculate economic order quantity (EOQ) is:

EOQ = √(2SD/H)

• S = cost per order
• D = annual demand
• H = holding cost per unit

EOQ = √[(2 x 850 x 14) / 65] = 19.14 units

in this case to obtain the lowest possible cost you must round down your answer to 18 units per order.

The EOQ can help you determine the minimum amount of units that you should order of a product in order to reduce inventory costs.