If monthly demand is 1,000 units, the ordering cost is $20 per order, and the holding cost is $1.50 per unit per year, which of the following is the optimal order quantity using EOQ model? Group of answer choices 320000 565.68 320 556.68 56.56
Question
If monthly demand is 1,000 units, the ordering cost is 1.50 per unit per year, which of the following is the optimal order quantity using EOQ model?
Group of answer choices
320000
565.68
320
556.68
56.56
Solution
The Economic Order Quantity (EOQ) model is used to determine the optimal order quantity that minimizes total inventory costs. The formula for EOQ is:
EOQ = sqrt((2DS)/H)
where: D = Demand rate (in this case, 1,000 units per month or 12,000 units per year) S = Ordering cost (in this case, 1.50 per unit per year)
Substituting these values into the formula, we get:
EOQ = sqrt((21200020)/1.5) EOQ = sqrt((480000)/1.5) EOQ = sqrt(320000) EOQ = 565.68
So, the optimal order quantity using the EOQ model is 565.68 units. However, since we can't order a fraction of a unit, we would round this up to 566 units. Therefore, the closest answer choice is 565.68.
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