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Meow Cat chow has a demand of 4000 units per year. When producing the product, the factory's setup cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order:

(A) all 4000 units at one time.
(B) 200 units per order.
(C) every 20 days.
(D) 10 times per year.
(E) none of the above

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TomShelby

Answer:

(B) 200 units per order.

Explanation:

With the economic order quantity formula we can solve for the minimum invnetory cost:

[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]

Where:  

D = annual demand = 4,000

S= setup cost = ordering cost = 20

H= Holding Cost = 4.00

[tex]Q_{opt} = \sqrt{\frac{2(4,000)(20)}{4}}[/tex]

[tex]Q_{opt} = \sqrt{\frac{160,000}{4}}[/tex]

[tex]Q_{opt} = \sqrt{40,000}[/tex]

EOC = 200 units

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