Question

Problem 20-12 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 1,000 units. His cost to carry one unit is $100 per year per unit, and he has estimated that each order costs $25 to place. Using the EOQ model, how many should Ray order each time

Answer 1

$22.37 units

Step-by-step explanation:

Using the formula for Economic order quantity (EOQ) to solve the above question.

EOQ = √ 2 × Annual demand × ordering cost per order / Carrying cost per unit

= √ 2 × 1,000 × 25 / 100

= 22.37 units.

The EOQ is 22.37 units, hence should be used by Ray to order each time.