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Ray's Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 2,000 units. His cost to carry one unit is $105 per year per unit, and he has estimated that each order costs $35 to place. Using the EOQ model, how many should Ray order each time

Answer :

Shahzaibfaraz

Answer:

The EOQ is 37 units that is rounded off to the nearest whole unit.

Explanation:

The economic order quantity or EOQ is the number of units that should be ordered each time to minimize the cost of ordering and holding the inventory. The EOQ can be calculated using the following formula,

EOQ = √(2 * D * O) / H

Where,

  • D is the annual demand in units
  • O is the ordering cost per order
  • H is the holding cost per unit per year

EOQ = √(2 * 2000 * 35) / 105

EOQ = 36.51 units rounded off to 37 units

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