SOLUTION: A manufacturer uses 600 units of a product per annum. The variable cost of placing an order amounts toRs. 70.00 and the variable cost of holding one unit for a year amounts toRs.

Algebra ->  Finance -> SOLUTION: A manufacturer uses 600 units of a product per annum. The variable cost of placing an order amounts toRs. 70.00 and the variable cost of holding one unit for a year amounts toRs.       Log On


   

Question 1181263: A manufacturer uses 600 units of a product per annum. The variable cost of placing an order
amounts toRs. 70.00 and the variable cost of holding one unit for a year amounts toRs. 8.40. The
optimal recommended order size (to the nearest unit) to minimise associated costs is?
Answer by CPhill(1959) About Me  (Show Source):
You can put this solution on YOUR website!
Here's how to calculate the optimal order size using the Economic Order Quantity (EOQ) formula:
**Understanding EOQ**
The Economic Order Quantity (EOQ) is a model that calculates the optimal order quantity for inventory that minimizes total inventory costs (which include ordering costs and holding costs).
**Formula**
EOQ = √(2 * D * O / H)
Where:
* D = Annual demand (units)
* O = Ordering cost per order
* H = Holding cost per unit per year
**Calculation**
1. **Plug in the values:**
* D = 600 units
* O = Rs. 70.00
* H = Rs. 8.40
EOQ = √(2 * 600 * 70 / 8.40)
2. **Simplify:**
EOQ = √(84000 / 8.40)
EOQ = √10000
EOQ = 100
**Answer**
The optimal recommended order size to minimize associated costs is 100 units.