Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the cost
ID: 456985 • Letter: T
Question
Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's bestminusselling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow. Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's bestminusselling hearing aid, the BZ15. The data available to Mr. Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cost = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
Use the information in the scenario above. If Tom orders at the economic order quantity, how many units does he order at a time?
Explanation / Answer
Annual demand (A) = Demand per week x Number of weeks = 25 units x 52 = 1,300 units per annum.
Ordering Cost (O) = $3 per order
Holding Cost (C) = $1.50 per unit per annum.
Economic Order quantity = Sqrt ( 2 x A x O / C)
= Sqrt ( 2 x 1,300 x 3 / 1.50)
= Sqrt ( 5,200)
= 72.11 units or 73 units.
So, Economic Order quantity is 73 units.