The demand for a product is 12500 units for a three month period. Each unit has a purchase price of $15 and ordering costs are $20per order placed. The annual holding cost of one unit of product is 10% of its purchase price. What is the economic order quantity?
EOQ = square root of 2(CoD)/Ch
We have : Co = 20
D = 12,500 * 4 (for one year period) = 50,000
Ch = 10% of price = 0.1 * 15 = 1.5
Then, EoQ = square root of 22050,000/1.5 = 1,154.7