Reference no: EM131622358

Problem - A wholesale distributor of lenses and frames has been seeking to minimize its inventory costs and is planning to apply the economic order quantity model to its main product, lens blanks. The data in the next column are available for the next year.

Demand                                 1,000,000 units

Average unit costs                   $20.00

Cost of ordering                      $72.00 per order

Unit carrying costs                   5% of average per unit cost

Management believes it can reduce the cost of ordering to $50.00 by implementing an online ordering system with the lens manufacturer.

Assuming that no online ordering system is implemented, the optimal economic order quantity based on the above data for next year (to the nearest whole unit) is

50,000 units.

12,000 units.

6,945 units.

2,500 units.