Question

14 ) Mark Achin sells 3,600 electric motors each year . The cost of these is $ 200 each , and demand is constant throughout the year . The cost of placing an order is $ 40 , while the holding cost is $ 20 per unit per year . There are 360 working days per year and the lead - time is 5 days . What is his economic order quantity in units ? A ) 100 B ) 200 C ) 60 D 120​

Answer 1

Mark Achin's economic order quantity in units is D. 120​ units.

What is economic order quantity?

The economic order quantity (EOQ) is the optimal order quantity that minimizes the total costs (ordering, receiving, and holding inventory).

The formula for the economic order quantity is the square root of [2(setup costs)(demand rate)] / holding costs.

Data and Calculations:

Annual demand = 3,600

Cost price per unit = $200

Ordering cost = $40

Holding cost per unit = $20

Working days per year = 360

Lead time = 5 days

Economic order quantity (EOQ) = square root of: [2(setup costs)(demand rate)] / holding costs.

= square root of (2 x $40 x 3,600)/$20

= 120

Thus, Mark Achin's economic order quantity in units is D. 120​ units.

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