Question

A farmer needs 500 vats of fertilizer a week during the summer. He has a barn that can hold plenty of vats which cost around $1 a week for storage & handling per vat. The ordering costs for a new order are $250 regardless of the order size. What is the EOQ for this farmer during the summer months? a. $250,000 b. $354 c. $500 d. $250

Answer 1

Answer:

option (c) $500

Explanation:

Data provided in the question:

Demand, D = 500 vats of fertilizers

Cost, C = $1

Ordering costs for a new order, F = $250

Now,

Economic Order Quantity = $\sqrt{\frac{2FD}{C}}$

on substituting the respective values, we get

Economic Order Quantity = $\sqrt{\frac{2\times250\times500}{1}}$

or

Economic Order Quantity = √250,000

or

Economic Order Quantity = 500

Cost of Economic Order Quantity = 500 × $1 = $500

Hence,

the answer is option (c) $500