Fixed Order Quantity - How do you calculate fixed order quantity?

Q: How do you calculate fixed order quantity?

We can calculate the order quantity as follows: Multiply total units by the fixed ordering costs (3,500 Ã— $15) and get 52,500; multiply that number by 2 and get 105,000. Divide that number by the holding cost ($3) and get 35,000. Take the square root of that and get 187. That number is then Q.

Answer

Here is how we may determine the order quantity: To achieve 105,000, double the total units by 2, and then multiply that amount by 5,500. This is based on the fixed ordering costs (3,500 × $15). Subtract $3 from that total to obtain $35,000. The result is 187 when you square that. Then, that figure is Q.

Fixed Order Quantity - How do you calculate fixed order quantity?

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