Question

In: Operations Management

Sysco purchases 10,000 units of a product each year. The supplier offers the units for sale...

Sysco purchases 10,000 units of a product each year. The supplier offers the units for sale at $10.00 per unit for up to 999 units and $9 per units for orders of 1,000 units or more. What is the economic order quantity if the order cost is $10.00 per order and the holding cost is 40 percent per unit per year?
A. 1,000 units B. 236 units C. 999 units D. 224 units

Solutions

Expert Solution

EOQ when  999 per order is placed = =(2*10000*10/0.4*10)^0.5=223.6 =224 units

So total cost of inventory =10000*10+(224*0.4*10)/2+(10000/224)*10 =100894.4

EOQ when 1000 units are ordered= =(2*10000*10/9*0.4)^0.5=235.7=236 units

So total cost of inventory =10000*9+(236*0.4*9)/2+(10000/236)*10 =90848.53

So the ttal cost is less for 1000 units of order so the EOQ will be 236 units

So the answer is 236 units

keosha answered 2 years ago
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