Question

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.

a. What is the economic ordering quantity?

Short answer

The economic order quantity is 700 units.

Step-by-step solution

Information provided in the question

Projected sales = 49,000 units

Ordering cost per order = $8

Carrying cost per pipe = $1.60

Calculation of economic order quantity

The economic order quantity is 700 units.

$\begin{array}{rcl}& & \text{EOQ=}\sqrt{\frac{2\times \mathrm{Projected}\mathrm{sales}\times \mathrm{Ordering}\mathrm{cost}}{\mathrm{Carrying}\mathrm{cost}}}\\ & =& \sqrt{\frac{2\times 49,000\times \$8}{\$1.60}}\\ & =& \sqrt{\frac{784,000}{1.60}}\\ & =& 700\mathrm{units}\end{array}$