Question

Company C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company C&A $30 per order and $50 per bottle. Company C&A’s annual holding cost percentage is 40%. Assume Company C&A operates 50 weeks in a year. What order quantity minimizes Company C&A’s total ordering and holding cost per year? A. 300 B. 212 C. 42 D. 30

Answer 1

Answer:

A. 300

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 = 600 bottles × 50 weeks = 30,000 bottles

Carrying cost per bottle = $50 × 40% = $20

And, the ordering cost per order is $30

Now put these values to the above formula  

So, the value would equal to

= $\sqrt{\frac{2\times \text{30,000}\times \text{\ 30}}{\text{\ 20}}}$

= 300 bottles

Hence, option A is correct