Question

Demand for an item is 1,700 units per year. Each order placed costs $8; the annual cost to carry items in inventory is $3 each. In what quantities should the item be ordered

Answer 1

Answer:

95.22 units

Explanation:

The computation of the number of quantities for ordering the items is shown below:

For this question, we need to find out the economic order quantity which is

$= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}$

where,

Annual demand is 1,700 units per year

Ordering cost per order is $8

Carrying cost per unit is $3

Now placing these values to the above formula

So, the economic order quantity is

$= \sqrt{\frac{2\times \text{1,700}\times \text{\ 8}}{\text{\ 3}}}$

= 95.22 units

We simply applied the above formula to find out the number of quantities for order