Question

Cheeseburger and Taco Company purchases 17,886 boxes of cheese each year. It costs $20 to place and ship each order and $6.76 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders.

Answer 1

Economic order quantity(EOQ)

It is the size of the order for which both:

1. ordering and

2. carrying cost

are at a minimum.

It is used in an optimizing stock control system.

Economic order quantity is a reorder quantity.

Formula: EOQ=

√{(2× Annual Consumption ×Cost of placing an order)/Cost of carrying per unit per annum}

EOQ= √{(2× 17.886×20)/6.76}

EOQ=10.29

So it is best to place 10 boxes order each time as per economic order quantity.