Question

Belgian Chocolates of Boca expects to sell 12,000 cases of chocolate truffles next year. The annual holding cost for the truffles is $16 per case. The ordering cost is $60 per order. Delivery lead time is 4 days. Given this information, what is the EOQ?

a. 600 cases

b. Approximately 78 cases

c. 80 cases

d. 300 cases

e. Approximately 425 cases

Answer 1

Economic Ordering Quantity (EOQ)

Economic Order Quantity [EOQ] is calculated by using the following formula

Economic Order Quantity = [(2 × Annual Demand x Ordering Cost) / Carrying Cost]^½

Annual Demand = 12,000 Cases

Ordering Cost = $60 per Order

Carrying cost/Holding Cost = $16 per case

Therefore, the Economic Order Quantity = [(2 × Annual Demand x Ordering Cost) / Carrying Cost] ^½

= [(2 x 12,000 x 60) / 16] ^½

= [14,40,000 / 16] ^½

= [90,000] ^½

= 300 Cases

“Hence, the Economic Ordering Quantity (EOQ) would be (d). 300 Cases”