Question

An appliance store sells 500 units of a particular type of dishwasher each year. The demand for this product is essentially constant throughout the year. The store orders its products from a regional supplier, and it typically takes two weeks for the dishwashers to arrive after an order has been placed. Each time an order is placed, an ordering cost of $1,000 is incurred. Each dishwasher costs the hardware store $300 and retails for $550. The store's annual cost of capital is estimated to be 7% per year.
Using the economic order quantity (EOQ) formula, determine the optimal order quantity

Answer 1

Answer:

161 units

Explanation:

Economic order quantity = √[(2 x annual demand x orderign cost) / annual holding cost per unit]

annual demand = 500 units

ordering cost = $1,000

holding cost = $550 x 7% = $38.50

EOQ = √[(2 x 500 x $1,000) / $38.50] = 161.16 units ≈ 161 units