Calculate the EOQ based on the following information: 21 000 units used annually, purchased at R65 per unit. Order cost is R340 per order. Carrying cost is 9% of inventory value.a.1 633 unitsb.1 614 unitsc.1 599 unitsd.1 562 units
Question
Calculate the EOQ based on the following information: 21 000 units used annually, purchased at R65 per unit. Order cost is R340 per order. Carrying cost is 9% of inventory value.a.1 633 unitsb.1 614 unitsc.1 599 unitsd.1 562 units
Solution
The Economic Order Quantity (EOQ) is a method used in inventory management to determine the most cost-effective order quantity. The formula for EOQ is:
EOQ = sqrt((2DS)/H)
where: D = Demand rate (annual usage), which is 21,000 units S = Order cost, which is R340 per order H = Holding cost per unit per year, which is 9% of the cost per unit
First, we need to calculate the holding cost per unit per year (H). The cost per unit is R65, so the holding cost is 9% of R65, which is R5.85.
Now we can substitute these values into the EOQ formula:
EOQ = sqrt((221000340)/5.85)
EOQ = sqrt(28740000/5.85)
EOQ = sqrt(4914529.9145)
EOQ = 2216.87 units
However, this answer does not match any of the options provided. Please check the information provided or the options.
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