Question

Ray’s Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,000 units. His cost to carry one unit is $100 per year per unit, and he has estimated that each order cost $25 to place. a) Using the EOQ model, how many should Ray order each time?

Answer 1

Answer:

The 22.37 unit should be used in ordering ray order each time.

Explanation:

Economic Order Quantity (EOQ) : The EQO is that quantity which the firm has to be  produced by minimizing the ordering cost per order and carrying cost per unit

The formula to compute EQO is shown below:

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

= $\sqrt{\frac{2\times \text{1000}\times \text{25}}{\text{100}}}$

= 22.37 units

Thus, the EOQ is 22.37 units.

Hence, the 22.37 unit should be used in ordering ray order each time.