What is the estimated economic order quantity for the goat cheese?

• A. 25 pounds
• B. 50 pounds
• C. 75 pounds
• D. 100 pounds

Answer: (B)

The main idea here is choosing an order size that minimizes total annual cost by balancing two opposing costs: how often you place orders and how much inventory you keep on hand. If you order in tiny batches, ordering costs pile up; if you order in big batches, carrying costs rise because you hold more inventory for longer.

The standard way to find this balance is the economic order quantity (EOQ) formula: EOQ = sqrt(2DS/H), where D is the annual demand, S is the cost to place one order, and H is the holding cost per unit per year. This formula captures the trade-off: the first part (2DS) reflects the cost of ordering lots, and the denominator H reflects the cost of holding inventory.

In the goat cheese problem, you’re given data for D, S, and H and asked which quantity minimizes total cost. The value produced by those numbers is the quantity that satisfies the EOQ calculation, so it’s the one that minimizes total annual cost. If you tried a smaller quantity, you’d incur more frequent orders; if you tried a larger one, you’d pay more in carrying costs. The option that matches the EOQ given the data is the best choice because it represents the balance point where ordering costs and holding costs are equal in the annual cost framework.