Question

Sam’s Auto Shop services and repairs a particular brand of foreign automobile. Sam uses oil filters throughout the year. The shop operates 52 weeks per year, and weekly demand is 150 filters Sam estimates that it costs $16 to place an order and his annual holding cost rate is $2 per oil filter. Using this information, calculate the economic order quantity.

Answer 1

Answer:

The EOQ is 353 units

Explanation:

The economic order quantity or EOQ is the quantoty that minimized the holding and ordering cost for invetory.

The formula for EOQ is,

EOQ = √(2*D*O) / H

Where,

• D is the annual demand in units
• O is the ordering cost per order
• H is the holding cost per unit per annum

The annual demand of oil filters by Sam is,

Annual demand = 52 * 150 = 7800 filters

The EOQ for Sam Auto Shop is,

EOQ = √(2*7800*16) / 2

EOQ = 353.27 Units rounded off to 353 units