Massa Machine Tools expects total sales of $12,000. The price per unit is $6. The firm estimates an ordering cost of $9.96 per order, with an inventory cost of $.84 per unit. What is the optimum order size

Optimal order quantity= 217.781 units

Explanation:

Optimal order quantity is also called economic order quantity is the most cost-effective level of a product that can be manufactured at a certain time. Calculating optimal order quantity is important as it minimises excess stock of products and associated costs of storing excess.

Optimal order quantity= √{2*(Annual usage per unit* Setup cost)/(Annual carrying cost per unit)

Annual usage per unit= 12,000/6= $2,000

Optimal order quantity= √2*(2,000*9.96)/0.84

Optimal order quantity= √47,428.57

Optimal order quantity= 217.781 units

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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