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7) In the basic EOQ model, if D = 6000 per year, S = $150, and holding cost = $15 per unit per month, Unit cost $5, what is the economic order quantity? A) 24 B) 100 C) 141 D) 282 E) 346

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Answer:

B) 100

Explanation:

EOQ = √[(2 x S x D) / H]

  • D = annual demand = 6,000 units
  • S = order cost = $150 per order
  • D = holding cost per year = $15 x 12 = $180

EOQ = √[(2 x $150 x 6,000) / $180] = √($1,800,000 / $180) = √10,000 = 100

When you calculate economic order quantity, you must always use annual data, i.e. annual demand and annual holding cost.

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