Economic Order Quantity

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March 27, 2024 at 8:14 am #703441
Anonymous
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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?
March 28, 2024 at 8:14 am #703454
John Moffat
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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
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