Question

A certain product costs $200 to order. The cost per unit is $25 and the cost to carry one unit in inventory for 1 year is 20% of the value of the product. Monthly demand is 1,000 units. The company operates 5 days a week, 4 weeks per month. What is the EOQ?

Answer 1

Answer:

The EOQ will be 980 units

Explanation:

Cost of inventory $25 x 20% = $5

order cost = $200

Monthly demand = 1,000

Annual Demand =  12,000

$\sqrt{\frac{2*12000*200}{5} } = EOQ = 979,79 = 980$

We have to round up to a complete number because we cannot order 0,79 or 0,80 units If this was a material that could be a measurement in pounds it may be possible.