US CMA Part 2 · Chapter 4 · Question 4 of 15
Hollis Distributors sells 36,000 units of a product per year. Each order costs $60 to place and the annual carrying cost is $3.00 per unit. What is the economic order quantity?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 1,200 units
Explanation
EOQ = square root of (2 x annual demand x order cost / carrying cost per unit) = square root of (2 x 36,000 x 60 / 3) = square root of 1,440,000 = 1,200 units. At the EOQ, annual ordering cost (30 orders x $60 = $1,800) equals annual carrying cost (1,200/2 x $3 = $1,800).
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