CPIM Practice Exam

What is the economic order quantity (EOQ) for a given demand of 14,000 units and order cost of $30 per unit, with a carrying cost rate of 0.2?

1. 216 units

2. 305 units

3. 483 units

4. 683 units

The correct answer is: 683 units

The economic order quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes total inventory costs, which include ordering costs and carrying costs. The EOQ formula is given as: \[ EOQ = \sqrt{\frac{2DS}{H}} \] where: - \( D \) is the annual demand, - \( S \) is the cost per order, and - \( H \) is the carrying cost per unit per year. In this scenario, we have: - Annual demand \( D = 14,000 \) units, - Order cost \( S = 30 \) dollars per order, and - Carrying cost rate = 0.2 (which implies that the carrying cost per unit per year can be calculated as \( H = 0.2 \times \) unit cost, assuming the unit cost is provided). Since the unit cost isn't specified, typically, you can compute carrying costs as a percentage of a hypothetical unit price. However, if we need to derive a numerical value specifically for \( H \) without unit price information, we may instead use the rate in calculations or simply let \( H \) be a defined variable. Assuming the total carrying cost has