Question

The Cole Beverage Company (CBC) has a soft drink product that has a constant annual demand of 3,600 cases per year. A case of this soft drink product from Supplier A costs CBC $4 and carrying cost is charged at 25% of purchase cost (that is, $1 per case per year). Ordering costs are estimated to be $32 per order placed. Based on these information, the Economic Order Quantity (EOQ) for this soft drink product is a. 480 b. 240 c. 120 d. Not enough information given to answer this question

Answer 1

Answer:

a. 480

Explanation:

The computation of the economic order quantity is given below:

$EOQ = \sqrt{\frac{2\times annual \ demand \times ordering\ cost }{carrying \ cost}} \\\\= \sqrt{\frac{2\times 3600\times \ 32}{\ 1} }$

= 480 units

The carrying cost could be determined below:

= $4 × 25%

= $1

hence, the carrying cost is $1

Therefore the economic order quantity is 480

Thus, the correct option is a.