198k views
4 votes
Problem 2.7 Service Station A service station uses 1,200 cases of oil a year. Ordering costs is $40 and annual carrying cost is $3 per case. The station owner has specified an annual service level of 99 percent. a. What is the optimal order quantity? EOQ = This is the lot size.

1 Answer

6 votes

Answer:

179 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 = 1,200 cases

Ordering cost = $40

And, the annual carrying cost is $3 per case

Now placing these values to the above formula

So, the optimal order quantity is


= \sqrt{\frac{2* \text{1,200}* \text{\$40}}{\text{\$3}}}

= 179 units

Hence, the optimal order quantity is 179 units

User Matthewr
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.