Question

Harper Motors sells 30 cars per month at an average price of $24,200. The carrying cost per car is $140 and the fixed order cost is $685. How many orders should the company place per year?

Multiple Choice

• 6.07 orders

• 59.35 orders

• 9.10 orders

• 30.00 orders

• 17.13 orders

Answer 1

Question:

Harper Motors sells 30 cars per month at an average price of $24,200. The carrying cost per car is $140 and the fixed order cost is $685. How many orders should the company place per year?

Multiple Choice

A.) 6.07 orders

B.) 59.35 orders

C.) 9.10 orders

D.) 30.00 orders

E.) 17.13 orders

Ans: B.) 59.35 orders

Explanatory Solution:

Given:

Demand in Quantity = 30 Cars per month. Therefore, Annual Quantity Demanded = 30 × 12 = 360 Cars per Year

Average Selling Price per Car = $ 24,200

Fixed Order Cost = $ 685

Holding Cost or Carrying Cost per Car = $ 140

To Calculate:

Number of Orders the Company should place per year i.e. Economic Order Quantity:

Formula:

Economic Order Quantity (EOQ) = √ (2 × D × S) / H

Where:

D = Annual Quantity Demanded

S = Ordering Cost or Fixed Cost

H = Holding Cost or Carrying Cost

On putting the values in the formula, we get,

Economic Order Quantity (EOQ) = √ (2 × 360 × 685) / 140

= √ 493,200/140

= √ 3522.86

= 59.35 orders

Economic Order Quantity (EOQ) = 59.35 Orders

Hence, the Company should place 59.35 Orders per Year. So, our answer option is B.) 59.35 orders

Ans: B.) 59.35 orders