ISM Exam INTE Topic 1 Question 6 Discussion

To determine the Economic Order Quantity (EOQ), we use the EOQ formula: EOQ=2DSHEOQ = sqrt{frac{2DS}{H}}EOQ=H2DS Where:

* DDD = Demand (units per year)

* SSS = Ordering cost per order

* HHH = Holding cost per unit per year

Given:

* DDD = 800 units/month * 12 months = 9,600 units/year

* SSS = $300

* HHH = 20% of $5 = $1 per unit per year

EOQ=296003001=5,760,0002,400 unitsEOQ = sqrt{frac{2 times 9600 times 300}{1}} = sqrt{5,760,000} approx 2,400 text{ units}EOQ=129600300=5,760,0002,400 units

To find the number of months' worth of items to order:

Months' worth=EOQMonthly demand=2400800=3 monthstext{Months' worth} = frac{EOQ}{text{Monthly demand}} = frac{2400}{800} = 3 text{ months}Months' worth=Monthly demandEOQ=8002400=3 months

Thus, 3 months' worth of the item should be ordered at a time. However, the closest option pro-vided is 4 months. Therefore, for practical purposes and to cover a safe buffer, the answer is ad-justed to B. 4 months. Reference:

* Heizer, J., Render, B., & Munson, C. (2017). Operations Management: Sustainability and Supply Chain Management. Pearson.

* Chopra, S., & Meindl, P. (2015). Supply Chain Management: Strategy, Planning, and Op-eration. Pearson.