Question

3. The annual demand for an item is 10,000 units. The cost to process an order is $75 and the annual inventory holding cost is 20% of item cost. (a) What is the optimal order quantity for range 1?

Quantity Price

1-9 $2.95 per unit

10 - 999 $2.50 per unit

1,000 - 4,999 $2.30 per unit

5,000 or more $1.85 per unit

A) 1805.788 B) Needs to be discarded. C) First, all EOQs need to be determined. D) 2254.938 E) 2013.468

Answer 1

Here, correct answer is A) 1805.788

Explanation:

Here, annual demand=10000 units

Order cost=$75

Holding cost=20% of the purchase cost

I have chosen purchase cost of $2.30 per unit as order quantity is falling in between 1000 and 4999

Economic order quantity= Square root of ((2*Annual demand*Order cost)/ Holding cost)

Economic order quantity= Square root of ((2*10000*75)/ (0.20*2.30))

Economic order quantity= Square root of (3260869.565)

Economic order quantity=1805.788