Question

A certain type of computer costs $1,000, and the annual holding cost is 25% of the value of the item. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity? The answer that is posted is incorrect. The answer should be 110, does anyone have a way to do this problem correctly?

Answer 1

Answer:

The approximate economic order quantity is 110 units.

Explanation:

A = annual demand = 10,000 units per year

C = unit cost of pot = $1000

S = Ordering cost per order = $150

I = Annual carrying cost (%) = 25% of unit cost

H = Annual carrying cost ($) = 0.25*C

   = 0.25*$1000

    = $250 per unit per year

Optimal order quantity is obtain from the EOQ formula.

Economic Order Quantity (EOQ) is given as follows:

Q = \sqrt{\frac{2*A*S}{H}}

Q = \sqrt{\frac{2*10,000*150}{250}}

Q = \sqrt{\frac{3000000}{250}}

Q = \sqrt{12000} = 109.545

Q = 110 units per order

Therefore, The approximate economic order quantity is 110 units.