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The local Honda dealer, Finneas Auto, needs to decide how many light bulbs of a particular type to order for repairing Honda automobiles. This light bulb has a demand of 60 units per year and costs $20 each. The holding cost (also known as carrying charge) is 30 percent per year, and the ordering cost is $5 per order. a. What is the EOQ for this item?

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facundobuzzetti

Answer:

Economic order quantity (EOQ)= 10 units

Explanation:

Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.

Economic order quantity (EOQ)= √[(2*D*S)/H]

D= Demand in units

S= Order cost

H= Holding cost

In this case:

Demand= 60 units

S= $5

H= 20*0.3= $6

Economic order quantity (EOQ)= √[(2*60*5) / 6]

Economic order quantity (EOQ)= 10 units

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