Question

Henry​ Crouch's law office has traditionally ordered ink refills 50 units at a time. The firm estimates that carrying cost is 35​% of the ​$12 unit cost and that annual demand is about 235 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be​ optimal?

Answer 1

ordering costs = $22.34

Step-by-step explanation:

economic order quantity (EOQ) = √(2SD / H)

• D = annual demand = 235
• H = holding cost = 35% x $12 = $4.20
• S = cost per order = ?
• EOQ = 50

50 = √[(2 x S x 235) / $4.20]

2,500 = (2 x S x 235) / $4.20

$10,500 = 2 x S x 235

S = $10,500 / (2 x 235) = $10,500 / 470 = $22.34