The annual demand of a product is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year. Calculate the optimal order quantity using the fixed-order quantity model. [Select the appropriate range in which your answer falls.]

240

Explanation:

Since the annual demand of a product is 12,000 units, the ordering cost is $6 per order, and the holding cost is $2.50 per unit per year, then the optimal order quantity will be calculated as:

Optimal order quantity = √(2 × Annual demand × Ordering cost / Holding cost)

where,

Annual demand = 12000

Ordering cost = 6

Holding cost = 2.5

Optimal order quantity will be:

= √(2 × 12000 × 6/2.5)

== √(144000/2.5)

= ✓57600

= 240

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