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Answer :
Final answer:
The Economic Order Quantity (EOQ) for Rajesh Indian Market (RIM) is found to be approximately 566 pounds, making option a the correct answer.
Explanation:
To calculate the Economic Order Quantity (EOQ) for Rajesh Indian Market (RIM) regarding their rice demand, we use the EOQ formula:
EOQ = sqrt((2DS)/H)
where:
- D = Demand in units per period (200 pounds/month * 12 months = 2400 pounds/year)
- S = Ordering cost per order ($50)
- H = Carrying cost per unit per period ($5 * 15% = $0.75 per pound per year)
Plugging in the values, we get:
EOQ = sqrt((2 * 2400 * 50) / 0.75) ≈ sqrt((240000) / 0.75) ≈ sqrt(320000) ≈ 566 pounds
Therefore, the correct answer is a. 566 pounds.
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Answer:
A. 566 pounds
Explanation:
Given: Demand for rice is very consistent= 200 pounds per month.
Cost of rice per order= $50 per order.
Rice cost= $5 per pound.
Carrying charge= 15%
EOQ: Economic order quantity (EOQ) is the number of units that company should include in their inventory with each order to reduce cost of inventory.
Now, calculating EOQ.
Formula; EOQ= [tex]\sqrt{\frac{2DP}{C} }[/tex]
D= Demand in units for specified period.
P= relevant ordering costs per order.
C= Relevant carrying cost of one unit in stock for the time period used for D.
EOQ= [tex]\sqrt{\frac{2\times (50)(200\times 12)}{5\times 15\%} }[/tex]
⇒ EOQ= [tex]\sqrt{\frac{2(50)(2400)}{5\times (0.15)} }[/tex]
Opening parenthesis
⇒ EOQ= [tex]\sqrt{\frac{240000}{0.75} }[/tex]
⇒ EOQ= [tex]\sqrt{320000}[/tex]
∴ EOQ= [tex]565.68\ pound \approx 566\ pounds[/tex]
Hence, Economic order quantity is 566 pounds.
