ACCA MA · Chapter 4 · Question 1 of 11
Annual demand for a component is 36,000 units. Each order costs $40 to place, and holding one unit in inventory costs $2 per year. What is the economic order quantity (EOQ)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 1,200 units
Explanation
EOQ = square root of (2 x Co x D / Ch) = square root of (2 x 40 x 36,000 / 2) = square root of 1,440,000 = 1,200 units. Leaving out the '2' on the holding cost side (dividing by 1) gives 1,697, and dividing by 4 gives 849.
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