What is the EOQ value (in tires) given D=2400, S=200, H=24?

Prepare for the PHFO Quantitative Analysis For Business Exam. Study with flashcards, multiple choice questions, hints, and explanations to ensure confidence and success in your exam!

Multiple Choice

What is the EOQ value (in tires) given D=2400, S=200, H=24?

Explanation:
Economic Order Quantity shows the quantity to order each time that minimizes the sum of ordering and holding costs. Use EOQ = sqrt(2DS/H). Here D is annual demand, S is the cost to place an order, and H is the annual holding cost per unit. Plug in the numbers: 2DS = 2 × 2400 × 200 = 960,000. Divide by H: 960,000 / 24 = 40,000. Take the square root: sqrt(40,000) = 200. So the optimal order size is 200 tires. Interpreting the costs: ordering 200 at a time leads to annual ordering cost of (D/Q) × S = (2400/200) × 200 = 2400, and annual holding cost of (Q/2) × H = (200/2) × 24 = 2400, totaling the minimum alongside the unchanged purchase cost.

Economic Order Quantity shows the quantity to order each time that minimizes the sum of ordering and holding costs.

Use EOQ = sqrt(2DS/H). Here D is annual demand, S is the cost to place an order, and H is the annual holding cost per unit.

Plug in the numbers: 2DS = 2 × 2400 × 200 = 960,000. Divide by H: 960,000 / 24 = 40,000. Take the square root: sqrt(40,000) = 200.

So the optimal order size is 200 tires. Interpreting the costs: ordering 200 at a time leads to annual ordering cost of (D/Q) × S = (2400/200) × 200 = 2400, and annual holding cost of (Q/2) × H = (200/2) × 24 = 2400, totaling the minimum alongside the unchanged purchase cost.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy