The quantity of the item that should be ordered is equal to 158 if its demand is 2,000 units per year.
The quantity of an item that should be ordered is linked to its demand and its carrying cost as well as the ordering cost. The quantity that should be ordered can be determined by using the economic order quantity formula. It may also be called as optimum lot size. The formula can be given as;
EOQ = √(2×ordering cost×annual demand ÷ holding cost)
As the annual demand for this item is 2000 units and each order cost $25 and the holding cost is $4, substituting these values in the equation as follows;
EOQ = √(2 × 25 × 2000 ÷ 4)
EOQ = √(100,000 ÷ 4)
EOQ = √25,000
EOQ = 158
Therefore, the quantity of the item that should be ordered is calculated to be 158.
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