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A jeweler purchases silver for use in its products. The firm uses 180 grams of silver per week and purchases silver for $2.6 per gram from a supplier. The cost to hold one gram of silver in inventory for one year is $0.52. Each time the firm orders silver from the supplier, the firm must pay a $12 order processing charge.

Required:
What is the optimal order quantity (in grams)?

Respuesta :

Answer:

407.62 grams

Explanation:

The computation of the optimal order quantity (in grams) is shown below;

As we know that

Economic order quantity is

= (√2 × annual demand × ordering cost) ÷ (√carrying cost)

where

Annual demand  = 180 × 52 = 9,360 grams

Carrying cost is = $2.6 × $0.52 = $1.352

Ordering cost = $12

Now the economic order quantity is

= (√2 × 9,360 × $12) ÷ (√1.352)

= (√224,640) ÷ (√1.352)

= 407.62 grams

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