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17 October, 14:56

Sam's Auto Shop services and repairs a particular brand of foreign automobile. Sam uses oil filters throughout the year. The shop operates 52 weeks per year, and weekly demand is 150 filters Sam estimates that it costs $16 to place an order and his annual holding cost rate is $2 per oil filter. Using this information, calculate the economic order quantity.

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  1. 17 October, 17:49
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    The EOQ is 353 units

    Explanation:

    The economic order quantity or EOQ is the quantoty that minimized the holding and ordering cost for invetory.

    The formula for EOQ is,

    EOQ = √ (2*D*O) / H

    Where,

    D is the annual demand in units O is the ordering cost per order H is the holding cost per unit per annum

    The annual demand of oil filters by Sam is,

    Annual demand = 52 * 150 = 7800 filters

    The EOQ for Sam Auto Shop is,

    EOQ = √ (2*7800*16) / 2

    EOQ = 353.27 Units rounded off to 353 units
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