Question

One of the most-often sold items at a grocery store is frozen pizzas. The weekly demand for frozen pizzas at a local grocery store is 10,000 pizzas. Whenever a new order is placed for a batch of frozen pizzas, the grocery store incurs a cost of $20. The holding costs are $0.10 per frozen pizza per week. Determine the EOQ for frozen pizzas.

Answer 1

Answer: 2,000 pizzas

Explanation:

Economic Order Quantity (EOQ) allows a business to calculate the optimal amount of units it should order given its ordering and holding costs as well as demand.

EOQ = √((2 * Weekly demand * Ordering costs) / Holding cost)

= √(( 2 * 10,000 * 20) / 0.10

= √ (400,000 / 0.10)

= 2,000 pizzas