The Economic Order Quantity (EOQ) formula is Q* = sqrt(2DS/H). If D=10,000 units/year, S=$200 per order, and annual holding cost per unit H=$2, what is EOQ (approximately)?

The Economic Order Quantity (EOQ) formula is Q* = sqrt(2DS/H). If D=10,000 units/year, S=$200 per order, and annual holding cost per unit H=$2, what is EOQ (approximately)?

• A. 2,000 units
• B. 1,414 units
• C. 1,000 units
• D. 1,800 units

Answer: (B)

The main idea is to find the quantity that balances ordering costs with holding costs to minimize total annual costs. The EOQ formula gives Q* = sqrt(2DS/H). Plug in the values: D = 10,000 units/year, S = $200 per order, H = $2 per unit per year. Compute 2DS/H: 2 × 10,000 × 200 = 4,000,000; divide by H (2) gives 2,000,000. Take the square root: sqrt(2,000,000) ≈ 1,414.2. So the optimal order quantity is about 1,414 units, which matches the given option closest to that value.

The main idea is to find the quantity that balances ordering costs with holding costs to minimize total annual costs. The EOQ formula gives Q* = sqrt(2DS/H).

Plug in the values: D = 10,000 units/year, S = $200 per order, H = $2 per unit per year.

Compute 2DS/H: 2 × 10,000 × 200 = 4,000,000; divide by H (2) gives 2,000,000. Take the square root: sqrt(2,000,000) ≈ 1,414.2.

So the optimal order quantity is about 1,414 units, which matches the given option closest to that value.