Question

HighLife Corporation has the following information: Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the EOQ if HighLife pays $45/unit? Due to possible differences in rounding, choose the closest answer.\

Answer 1

Answer:

365.15 units

Explanation:

The computation of the economic order quantity is shown below:

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

where,

Annual demand is

= 30 units × 300 days

= 90,000 units

ordering cost is $50

Carrying cost is

= $45 × 15%

= $6.75

Now placing these values to the above formula

So, the economic order quantity is

$= \sqrt{\frac{2\times \text{90,000}\times \text{\ 50}}{\text{\ 6.75}}}$

= 365.15 units

We simply applied the above formula so that the EOQ could come