High School

G Carpenter Tools sells grinders and is open for business 300 days a year. It costs the company $375 each time it places an order with the manufacturer for the grinders. The annual cost of carrying a grinder in inventory is $125. The manager uses the basic EOQ model and forecasts an annual demand for the grinders of 2,400 units.

What is the economic order quantity?

Answer :

Final answer:

The economic order quantity (EOQ) for grinders is approximately 107 units.

Explanation:

The economic order quantity (EOQ) is a formula used to determine the optimal order quantity for a product that minimizes the total annual cost of ordering and carrying inventory. The formula for calculating EOQ is:

EOQ = √(2 * d * S / H)
  • d = annual demand
  • S = cost per order
  • H = annual holding cost per unit

In this case, the annual demand for grinders is 2400 units, the cost per order is $375, and the annual holding cost per unit is $125. Plugging in these values into the formula, we get:

EOQ = √(2 * 2400 * 375 / 125) = √(2 * 720000 / 125) = √(1440000 / 125) = √11520 = 107.22

Therefore, the economic order quantity for grinders is approximately 107 units.

Learn more about Economic Order Quantity here:

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