Question

Use the following information to calculate the low cost order quantity and use Excel to show the answer.

Annual demand           1500

Annual Carrying cost    15%

Ordering cost               $500 per order

Quantity	Price per unit	Quantity	Transportation Cost per unit
1-200	$1200	1-700	$250
201-400	$1100	701-1400	$245
401 and up	$1000	1401 and up	$240

Answer 1

Answer:

Low cost Order Quantity=83

Important formula:

Low cost Order Quantity = Square Root of [( 2 X Annual Demand X Ordering Cost per order)/ Carrying Cost per unit per year]

here, Arbitrarily, I have chosen  Price per unit=$1200 and Transportation Cost per unit=$250, using such values, i find low cost order quantity =83, this 83 value fall in between 1 -200 and 1-700

1	B	C
2	Carrying cost per unit per year	=0.15*(Price +Transportation cost per unit)
3	ordering cost per order	500
4	Annual Demand	1500
5
6	Low cost Order Quantity = Square Root of [( 2 X Annual Demand X Ordering Cost per order)/ Carrying Cost per unit per year]
7	Low cost Order Quantity	83

Excel formula:

1	B	C
2	Carrying cost per unit per year	=0.15*(Price +Transportation cost per unit)
3	ordering cost per order	500
4	Annual Demand	1500
5
6	Low cost Order Quantity = Square Root of [( 2 X Annual Demand X Ordering Cost per order)/ Carrying Cost per unit per year]
7	Low cost Order Quantity	=SQRT((2*C4*C3)/(0.15*1450))