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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Economic Order Quantity
A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400 units. Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is $40. What is the cost of holding one unit of Component C1 in inventory for one year?
The answer key they said $6.00
by taking: (2×40$x12000unit)=400^2
why don’t we take 2x12000unit/40$=400^2 ?
can you help to explain?
Using the EQO formula gives:
400 = square root ((2 x 12000 x 40)/Ch)
Squaring both sides gives:
400^2 = (2 x 12000 x 40) / Ch
Therefore Ch = (2 x 12000 x 40) / (400^2) = 6