Question

If annual demand is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model?
A. 421
B. 234
C. 78
D. 26
E. 312

Answer 1

Answer:

240 units

Explanation:

We can find Optimal order quantity easily by Optimal order quantity formula using the fixed order quantity formula  

Formula::  Optimal order quantity = $\sqrt[2]{\frac{2CoD}{Ch} }$

Where

Co = Ordering cost per order

D = Annual demand

Ch = Holding cost per unit

Calculations

Lets put in the values

Optimal order quantity = $\sqrt[2]{\frac{2CoD}{Ch} }$

Optimal order quantity = $\sqrt[2]{\frac{2*6*12000}{2.5} }$

Optimal order quantity = 240 units

Note: There must have been a mistake in question options the answer is 240 and closest to 240 is option B