A company manufactures 1,200 cylinders per day, each requiring a pressure gauge. The purchase price of the pressure gauge is $3.20. The company controller estimated annual holding costs at 25 percent per year, while the cost of placing an order was estimated at $55.00. Assuming that the plant operates 45 weeks per year, the EOQ for the pressure gauge is:

a. 3,000 units

b. 2,929 units.

c. 2,872 units.

d. 2,725 units.

e. 1,200 units.

Question

Business

Nicole Flynn

19 June, 23:47

A company manufactures 1,200 cylinders per day, each requiring a pressure gauge. The purchase price of the pressure gauge is $3.20. The company controller estimated annual holding costs at 25 percent per year, while the cost of placing an order was estimated at $55.00. Assuming that the plant operates 45 weeks per year, the EOQ for the pressure gauge is:

a. 3,000 units

b. 2,929 units.

c. 2,872 units.

d. 2,725 units.

e. 1,200 units.

+2

Answers (1)

Know the Answer?

Byron Ferrell · Answer 1

Given weekly demand = 1200 units

Number of weeks per year = 45

Annual demand (D) = weekly demand * number of weeks per year = 1200 * 45 = 54,000 units

Ordering cost (C) = $55

Holding cost (H) = 25% of purchase price = 25% of $3.20 = 0.25*$3.20 = $0.8

EOQ = √ (2DC/H) = √[ (2 * 54,000 * 55) / 0.8] = √ (5,940,000/0.8) = √7,425,000 = 2,725 units

Answer is D - 2,725 units