Demand for an item is 1,100 units per year. Each order placed costs $9; the annual cost to carry items in inventory is $2 each. In what quantities should the item be ordered?

Economic order quantity (EOQ) is the order quantity that minimizes the total holding costs and ordering costs. We calculate EOQ by using the formula [tex]Q=\sqrt{2DS/H}[/tex] where Q is the economic order quatity, D is the the annual demand in units, S is the order cost per order and H is the holding cost per unit per year.

[tex]Q = \sqrt{(2*1100*9)/2}\\[/tex] = [tex]\sqrt{9900}[/tex] = 99.498 units

- Since you cannot order a fraction of a unit, we round up the order quantity to get the optimal order quantity which is 100 units

Shahzaibfaraz Shahzaibfaraz · Answer 2 · 2020-02-27T09:05:07+01:00

Answer:

EOQ = 99 or 100 units

Explanation:

To calculate the optimal order size, we need to calculate the Economic Order Quantity (EOQ) which is the order size at which cost of ordering and cost of holding the inventory is lowest. EOQ is calculated using the following formula,

EOQ = [(2 * D * S) / H]^0.5
Where D = Annual demand in units
S = Ordering cost per order
H = Holding cost per unit per year

So, EOQ = [ (2 * 1100 * 9) / 2 ]^0.5 = 99.4987 units

You can say that the EOQ is 99 or 100 units rounded off