Question

If annual demand is 50,000 units, the ordering cost is $25 per order, and the holding cost is $5 per unit per year, which of the following is the optimal order quantity using the fixed-order quantity model? A) 500 B) 708 C) 909 D) 634 E) 141

Answer 1

Answer:

B) 708

Explanation:

The computation of the economic order quantity is shown below:

Data given in the question

Annual demand = 50,000 units

Ordering cost per order = $25

Holding cost per unit = $5

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

$=\sqrt{\frac{2\times \text{5,000}\times \text{\ 25}}{\text{\ 4}}}$

= 708 units

We apply the above formula to compute the economic order quantity so that the approximate value could come by considering the all items given in the question