Using the EOQ formula sqrt(2DS/H) with D = 10,000 units, S = $100, and H = $2, what is EOQ?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

Using the EOQ formula sqrt(2DS/H) with D = 10,000 units, S = $100, and H = $2, what is EOQ?

Explanation:
Finding the optimal order size comes from balancing two opposing cost components: the cost to place orders and the cost to hold inventory. The EOQ formula gives the quantity that minimizes the sum of these annual costs, with D as annual demand, S as the cost per order, and H as the annual holding cost per unit. Plug in the numbers: EOQ = sqrt(2DS/H) = sqrt((2 * 10,000 * 100) / 2) = sqrt(1,000,000) = 1,000 units. So the most economical order size is 1,000 units. At this size, annual ordering cost equals annual holding cost: ordering cost = (D/Q) * S = (10,000/1,000) * 100 = $1,000, holding cost = (Q/2) * H = (1,000/2) * 2 = $1,000, totaling $2,000.

Finding the optimal order size comes from balancing two opposing cost components: the cost to place orders and the cost to hold inventory. The EOQ formula gives the quantity that minimizes the sum of these annual costs, with D as annual demand, S as the cost per order, and H as the annual holding cost per unit.

Plug in the numbers: EOQ = sqrt(2DS/H) = sqrt((2 * 10,000 * 100) / 2) = sqrt(1,000,000) = 1,000 units.

So the most economical order size is 1,000 units. At this size, annual ordering cost equals annual holding cost: ordering cost = (D/Q) * S = (10,000/1,000) * 100 = $1,000, holding cost = (Q/2) * H = (1,000/2) * 2 = $1,000, totaling $2,000.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy