Question

# Cheeseburger and Taco Company purchases 18,202 boxes of cheese each year. It costs \$23 to place...

Cheeseburger and Taco Company purchases 18,202 boxes of cheese each year. It costs \$23 to place and ship each order and \$4.00 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

Calculate Economic Order Quantity

Solution:

Economic order quantity is calculated using the following formula:

= ( 2AO / C ) ( ½ )

Where A = Annual usage units

O = Ordering cost per order

C = Annual carrying cost of one unit

In the given question as per the data given:

A = Annual usage units = 18,202

O = Ordering cost per order = \$ 23

C = Annual Inventory carrying cost of one unit = \$ 4

Thus Economic order quantity = ( ( 2* 18,202 * \$ 23 ) / 4 ) ( ½ )

= ( 837,292 / 4 ) ( ½ )

= (209,323 ) ( ½ )

= 457.5183 ( when rounded off to four decimal places )

= 457.52 ( when rounded off to two decimal places )

= 458 orders ( when rounded off to the nearest integer )

Note: The square root of 209,323 is calculated using the following formula in excel

=SQRT(Number) = SQRT(209,323) = 457.5183

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