Question
Download Solution PDF800 units of certain item of stock are needed over each year period. If the unit cost is 400 and the cost of each order is 150, the carrying cost is 1.5%. Then the Economic Order Quantity (EOQ) is:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
The Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes the total cost of inventory, including ordering and holding costs.
Where:
D D = Annual demand (units/year)S S = Ordering cost per orderH H = Holding or carrying cost per unit per year
Given Data:
- Demand
D D = 800 units/year - Ordering cost
S S = 150 - Carrying cost percentage = 1.5%
- Unit cost = 400
Calculate Carrying Cost per Unit:
Substitute into the EOQ Formula:
The Economic Order Quantity (EOQ) is 200 units.
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